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 recession), the median bonus payment was 10.1% of salary. However, bonus payments are expected to fall in 2012, and be worth a median 5% of salary.
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 were 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.
Given the amount of scrutiny bonus schemes have come under lately, it is perhaps surprising that only one-third of organisations have reviewed their bonus arrangements in the past year. 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 one-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."