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Bonuses bounce back

Date Added: Fri July 30 2010
New look bonuses – strongly tied to the bottom line with more challenging targets and greater focus on return on investment may be perceived in a more favourable light.

A report published this month by global management consulting firm Hay Group, reveals that 39 per cent of companies across the world have or plan to increase the proportion of variable pay in their employees’ pay packets. However, with new bonus prospects comes a renewed focus on performance with 47 per cent of companies surveyed also stating they have increased or are planning to increase performance thresholds.

The main reason cited for changing variable pay programs is strategic, with 61 per cent of companies saying that the most important driver for the change was better alignment of variable pay programs with the business strategy. This is closely followed by improving organisational or team performance (40 per cent). The report reveals that variable pay has become a board level issue with 55 per cent of organisations indicating that the board has become more involved in the decision making around variable pay.

Thomas Haussmann, Variable Pay Leader for Hay Group EME commented: “At this time of change it is important that companies are aware of the serious impact that raising performance thresholds can have on employee engagement. Many employees have seen limited or no pay rises and bonus payments over the past two years. If the variable portion of their pay is made too difficult to earn, there is a danger they will disengage altogether, just when companies most need them on board. Our research into employee engagement** has shown that companies with the most engaged employees report revenue growth at a rate two-and-a-half times greater than their competitors with the lowest level of engagement.

“The best reward programs are those that reflect the company’s particular business model and culture, rather than those which are simply copied from ‘best practice’ or industry standards. A variable pay strategy will not drive performance if the objectives and link to company strategy are not clear. As the research indicates, communication of pay schemes and their link to the business strategy must be clearly defined, and flow down from the very top of an organisation in order for them to be successful.”