Some of the most interesting responses from our recent compensation survey relate to how bonuses are calculated. More senior executives tended to have bonuses tied to innovation metrics, like the number of concepts in the pipeline or number of pilot tests launched, while more junior executives saw their bonuses linked to overall company performance or their ability to meet goals set for their specific role, like developing prototypes or conducting innovation workshops.
We divided the responses up into three roughly equal groups, by seniority:
1. Leaders – This group typically included titles such as VP Innovation, SVP Innovation, or Chief Innovation Officer. Titles such as “Global Head of Innovation” were also placed into this group, as were executives with C-level titles who also oversaw innovation (i.e., CMO). One quarter of this “Leader” group (exactly 25.0 percent) were C-level executives.
2. Directors – The most common title here was Director of Innovation, but “senior directors” and like titles were included as well. These “Directors” typically reported directly to the Leaders, above, but not always; some of them reported into the marketing or technology organization, and others reported to business units or product-line heads.
3. Managers & Catalysts – This group included managers, senior managers, “catalysts,” and other staff-level positions.
Here’s what respondents in each group told us when we asked how their bonus is calculated, and how the structure of their comp package has evolved over time. All respondents work for US companies, unless otherwise noted.
Leaders
Bonus is “mostly based on a qualitative assessment of my performance and contributions.” (VP of Innovation at a private company, $10-$49 billion in revenue.)
“Cash bonus is tied to innovation-based objectives, but managed in a ‘normal’ fashion similar to other VPs in the company. In other words, I do not have a stake (like a carried interest) in specific initiatives we create.” (VP of Innovation at a public company, $1-$9.9 billion in revenue.)
Bonus is “non-formulaic, but based on ideas generated, executed, revenues, employees engagement, external perceptions.” (Global Head of Innovation at public company, reporting directly to CEO. $10-$49 billion in revenue.)
“Cash bonus is tied to performance against goals agreed annually. Goals vary from year to year. 40 percent of bonus comp is equity, the rest is cash.” (VP of Innovation at public company, $10-$49 billion in revenue.)
“Company performance and business line performance are primary drivers, secondary driver is achieving specific goals that vary year to year, but generally relate to # of proof-of-concepts, # of pilots, # of commercialized products and P&L impact.” (Chief Innovation Officer at public company, reporting to vice chairman. $10-$49 billion in revenue.)
“Cash bonus based on year-end targets and overall company results.” (VP of Research & Innovation at public company, $10-$49 billion in revenue.)”
Cash bonus is tied to EPS annually. Restricted stock grants are board-determined.” (Chief Innovation Officer at public company, reporting directly to CEO. $10-$49 billion in revenues.)
Directors
- “Cash bonus is tied to effectively advancing innovation initiatives across enterprise, but is highly subjective to whims of Chief Innovation Officer.” (Director of Innovation at public company with more than $50 billion in revenue.)
- “Bonus is based on key company performance metrics, then multiplied by personal performance rating.” (Strategy Director at private company in Europe, reporting to CEO, $100 million to $999 million in revenue.)
- “Target cash bonus paid if company EVA growth meets minimum percentage over previous year. Pro-rated proportionally if growth less than target, but also no limit on top end if growth exceeds target. Plus profit sharing paid out per number of granted stock appreciation plan shares (SAP) per ‘phantom stock’ program. SAP shares granted at discretion of CEO but awards tied to actual results based accomplishments of growth (i.e., successful launch of new platforms, winning business of new customer accounts, etc vs ‘filing patents’ or ‘patents granted’ etc.)” (Director of Product Innovation at private company, $100 million to $999 million in revenue.)
- “50 percent tied to individual performance (goal attainment + leader behaviors), 50 percent tied to company performance.” (Director of Innovation at public company, $1 billion to $9.9 billion in revenue.)
- “We have a bonus structure at my level of 20/40, meaning threshold is 20 percent, max is 40 percent, and typical payout is somewhere in between. In addition we have [a long-term incentive plan] that comes in the form of restricted stock grants (typically 1000-3000 shares/year).” (Director of Innovation at public company, $10 billion to $49 billion in revenue.)
- “Bonus is tied to company performance only.” (Director of Innovation at public company, $10 billion to $49 billion in revenue.)
- “Our bonus is very poor — around two percent of annual salary, but there is a package of RSUs that vest every year, at around $20K for a Director-level role.” (Director of Innovation at Asia-Pacific public company, $10 billion to $49 billion in revenue.)
- “Bonus relates to ideas/new offerings moved past various early gates in the new product development process.” (Director of Innovation at public company, $10 billion to $49 billion in revenue.)
- “The value placed on innovation and its leadership in an organization varies by industry. I work in the hospitality industry, which has been slow and circumspect about funding innovation and defending those costs / approaches to shareholders.” (Director of Innovation at public company, $10 billion to $49 billion in revenue.)
- “Cash bonus is tied to annual MBOs [management by objectives] as well as overall company performance. Equity grants are subjective based on annual performance.” (Director of Innovation at public company, $100 million to $999 million in revenue.)
- “Performance is subjectively determined by my supervisor, and bonus is set as a percentage of base salary (0-20 percent.) Compensation is virtually identical to other employees in the organization at my pay grade, but things are in the works to alter it and tie it into concept performance rollouts.” (Entrepreneur-in-Residence at public company, revenue greater than $50 billion.)
- “Bonus is tied to ‘innovation accounting’ metrics such as percentage of annual revenue generated from product launches in prior 3 years. This is the first organization I’ve worked where innovation is genuinely considered the lifeblood of the company across all functions — sales, marketing, HR, operations. Everyone’s variable compensation has, to a greater or lesser degree, some element of innovation performance. The CEO’s long term incentive plan is tied to the percentage of annual revenues generated from new products and services launched within the past three years — something he is very open about — and that is reflected in my own bonus plan.” (Director of Innovation at private company, $100 million to $999 million in revenue.)
Managers & Catalysts
- “We are a consulting company that does innovation/technology development on the side — compensation structure wasn’t designed for my type of work. My cash bonus is tied simply to business coming in the door.” (VP/Head of Technology Development at public company, $100 million to $999 million in revenue.)
- “Over time, my compensation has been reduced by 30 percent and our budget for innovation has been cut in half.” (Innovation Advocate at public company, $10 billion to $49 billion in revenue.)
- “Annual bonus tied to goals and competencies. No specific innovation results required.” (Innovation Manager at Central/South American private company, $100 million to $999 million in revenue.)
- “My cash bonus is tied to creating new, credible projects in the R&D pipeline, and to managing those projects (and the personnel involved) to generate new products.” (R&D Manager at public company, $10 billion to $49 billion in revenue.)
- “Delivering new business opportunities through Innovation Workshop engagement.” (Innovation Manager at Western European private company, $1 billion to $9.9 billion in revenue.)
- “Tied to my ability to bring new concepts to prototype for the healthcare market and hand off to channel partners or companies.” (Senior Innovation Strategist at private company, $10 billion to $49 billion in revenue.)
- “My bonus is typically 30 percent of my base salary. It is tied to overall financial performance of my division and corporation.” (Innovation Manager at public company, $10 billion to $49 billion in revenue.)
- “Tied to company performance (75 percent) and personal performance (25 percent); personal performance is based on the number of innovation ideas assessed, speed of assessment, and go to market.” (Innovation Senior Manager at Western European public company, $1 billion to $9.9 billion in revenue.)
- “Tied to the completion of strategic initiatives/projects executed against agreed-upon themes and timelines.” (Innovation Manager at private company, $100 million to $999 million in revenue.)
- “My job is newly created and it doesn’t seem like there was much benchmarking done. My cash bonus is tied to company-wide goals, not job-specific or division goals.” (Innovation Manager at private company, $10 billion to $49 billion in revenue.)
- “My cash bonus is tied to meeting specific milestones within several innovation initiatives.” (Innovation Consultant at public company, $10 billion to $49 billion in revenue.)
