BONUSES
Bonus payments worth 6% in 2011
Bonus payments made in 2011 were worth a median 6% of salary, according to a survey conducted by pay analysts XpertHR. When similar research was conducted in 2008, ahead of the economic downturn, the median bonus payment was 10.1% of salary.
However, according to the research, bonus payments are expected to fall in 2012, and be worth a median 5% of salary.
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The report, based on a survey of 91 bonus schemes, reveals that the main aim of bonus schemes is to "promote and reward sustained high levels of performance". The majority of organisations reported that their scheme met this aim either partially or in full.
Key survey findings
Only around half of the organisations surveyed operate a cap on the level of bonus payments – ranging from 10% to 150% of salary.
Open-ended arrangements are more prevalent among financial services and retailing companies.
The payment pot for most bonus schemes is linked directly to company profits, with individual payments determined through an assessment of employee performance. The most common method of distributing payments is to allow management discretion, followed by operating a forced distribution of payments.
Only a third of organisations have reviewed their bonus arrangements in the past year. As many as 15% of schemes have never been analysed.
Survey respondents also identified a number of problems with their bonus schemes. Chief amongst these was employee disappointment with the size of payments, mentioned by almost half the organisations surveyed. Around a third also cited a lack of employee understanding of the scheme; and a weak link between performance and payments.
Despite their problems, many survey respondents feared that removal of their bonus scheme would damage their ability to recruit and retain staff, while others mentioned a loss of employee morale, and a loss of competitive edge. However, a handful of survey respondents said that little or nothing would happen if they scrapped their current bonus scheme.
When asked what advice they would give other employers on operating a bonus scheme, communication was mentioned most often. This is best summed up in the words of one respondent: "Communication, simplicity and transparency are key."
What you will find in this report
What type of bonus schemes are utilised?
What are bonus schemes for?
Do bonus schemes work?
Ending schemes will hit recruitment
Setting the bonus pot
Management discretion
Expressing the payment
Size of bonus
Bonus scheme metrics
Level of performance
Bonus schemes in 2011
Monitoring and modifications
Disadvantages of bonus schemes
Bonus schemes in 2012
Employer comments on bonus schemes
Communication is key
Table 1: Bonus scheme factors measured
Chart 1: Type of bonus scheme
Chart 2: Objectives of bonus schemes
Chart 3: Disadvantages of bonus schemes.
A final word
"Bonus payments made to many junior employees are almost universally far lower than those received by employees occupying the top tiers of management. Nevertheless, they can represent a significant, if variable, element of total remuneration." - Sheila Attwood, XpertHR Pay and Benefits editor.
Want to know more?
Title: “Bonus schemes 2011: providing an incentive”, by Adam Geldman, IRS Employment Review, 16 December 2011.
Survey details: The research is based on a survey of 128 organisations, of whom 90% operate a bonus scheme. 91 organisations gave details of their schemes.
Availability: The report is available on a subscription basis. To subscribe to XpertHR visit www.xperthr.co.uk/article/111390/bonus-schemes-2011--providing-an-incentive.aspx?mid=43.
XpertHR is the “UK's most comprehensive online source of legal compliance, good practice, benchmarking and salary survey information made available to HR professionals as a single subscription service”. For more details visit www.XpertHR.co.uk.