More than half (52%) of UK firms are raising performance thresholds for staff to earn bonuses and incentives while almost half (46 are putting more emphasis on variable pay for all levels of employees.
A study from Hay Group, based on the views of HR professionals from 1,300 global firms of which 132 are based in the UK, also suggests that bonus culture in the UK is undergoing a significant change.
These changes include making short-term incentives harder for employees to earn and subjecting them to greater scrutiny at the highest level.
Two thirds of respondents agree that bonus schemes are under greater scrutiny by senior management.
The study also analyses the reasons for the shift towards variable pay with 61% of respondents identifying the need for better alignment with business strategy as the key driver for change.
Other important drivers include: improving team performance (35%), enhancing individual performance (31%) and ensuring market competitiveness (31%).
Stuart Hyland, head of reward consulting at Hay Group, said: “The bonus is back on the agenda for UK PLC – but getting harder for employees to earn and under increasing strategic scrutiny.
“While increasing the emphasis on variable pay, firms need to ensure they drive the right behaviours, and guard against placing excessive pressure on already de-motivated staff. However, currently this is a risk they are prepared to take as the upsides of getting it right can be significant.”
Communicating variable pay schemes to employees was also highlighted as a challenge with 48% of respondents unconvinced that their incentive schemes are understood by their workforce and 23% answering that their schemes are effectively communicated by line managers.
As a result, 61% have implemented changes to the communication of variable pay programmes or are considering doing so.
Hyland added: “As a result of widespread concern about the impact and role of bonuses in the wake of the financial crisis, firms need to develop cost-effective reward strategies and target their limited pay budgets towards those they most need to retain and motivate to deliver sustainable business improvement.”
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