What Makes a Great Place to Work?

Incentive Programs

In addition to regular paychecks, many people receive financial rewards based on performance, whether their own, their employer's, or both. At computer-chip maker Texas Instruments (TI), for example, employees may be eligible for bonuses, profit sharing, and stock options. All three plans are incentive programs: programs designed to reward employees for good performance.

Bonus Plans

TI's year-end bonuses – annual income given in addition to salary – are based on company-wide performance. If the company has a profitable year, and if you contributed to that success, you'll get a bonus. If the company doesn't do well, you're out of luck, regardless of what you contributed.

Bonus plans have become quite common, and the range of employees eligible for bonuses has widened in recent years. In the past, bonus plans were usually reserved for managers above a certain level. Today, however, companies have realized the value of extending plans to include employees at virtually every level. The magnitude of bonuses still favors those at the top. High-ranking officers (such as CEOs and CFOs) often get bonuses ranging from 30 percent to 50 percent of their salaries. Upper-level managers may get from 15 percent to 25 percent and middle managers from 10 percent to 15 percent. At lower levels, employees may expect bonuses from 3 percent to 5 percent of their annual compensation.

Profit-Sharing Plans

TI also maintains a profit-sharing plan, which relies on a predetermined formula to distribute a share of the company's profits to eligible employees. Today, about 40 percent of all U.S. companies offer some type of profit-sharing program. TI's plan, however, is a little unusual: while most plans don't allow employees to access profit-sharing funds until retirement or termination, TI employees get their shares immediately – in cash.

TI's plan is also pretty generous – as long as the company has a good year. Here's how it works. An employee's profit share depends on the company's operating profit for the year. If profits from operations reach 10 percent of sales, the employee gets a bonus worth 4 percent of his or her salary. If operating profit soars to 20 percent, the employee bonuses go up to 26 percent of salary. But if operating profits fall short of a certain threshold, nobody gets anything.

Stock-Option Plans

Like most stock-option plans, the TI plan gives employees the right to buy a specific number of shares of company stock at a set price on a specified date. At TI, an employee may buy stock at its selling price at the time when he or she was given the option. So, if the price of the stock goes up, the employee benefits. Say, for example, that the stock was selling for $30 a share when the option was granted in 2007. In 2011, it was selling for $40 a share. Exercising his or her option, the employee could buy TI stock at the 2007 price of $30 a share – a bargain price.

At TI, stock options are used as an incentive to attract and retain top people. Starbucks, by contrast, isn't nearly as selective in awarding stock options. At Starbucks, all employees can earn "Bean Stock" – the Starbucks employee stock-option plan. Both full- and part-time employees get options to buy Starbucks shares at a set price. If the company does well and its stock goes up, employees make a profit. CEO Howard Schultz believes that Bean Stock pays off: because employees are rewarded when the company does well, they have a stronger incentive to add value to the company (and so drive up its stock price). Shortly after the program was begun, the phrase "bean-stocking" became workplace lingo for figuring out how to save the company money.