Recession has led to adjustment of bonus plans

The recession has led employers to adjust bonus plans to align with changing business priorities, according to the Performance and Reward Centre (PARC).

Its Developing Performance Incentives and Sustaining Engagement in a Volatile Environment report, jointly prepared with World at Work, concluded that in 2010 bonus plans included a wider range of targets and measures as employers focused on long term sustainability rather than short-term profit.

The report found three-quarters of the reward directors from UK, US and Continental Europe employers that took part had changed their incentive plans over the last two years.

A third of participants had changed their bonus arrangements as a result of the recession, as many recognised the need to ensure employees remained engaged.

Many employers introduced additional targets or measures to incentivise staff against operational or strategic goals, rather than profit-based measures.

Kevin Abbott, director at PARC, said: “Bonuses have come in for intense criticism recently – mainly due to bankers’ pay but also in other cases when organisations have paid large bonuses despite declining or even loss-making performance.

“Our research shows that, in fact, bonuses are a valuable business tool and many companies have adjusted their arrangements so that they stay relevant, achievable and fair in the current economic conditions.

“Bonus plans can enhance the communication of what needs to be done and so reinforce the motivational leavers of business direction, clarity and purpose.†

“They also enable employees to share in the success of hitting business targets. Nonetheless, as management determine such payments, it remains important to recognise these constitute investments in the business, alongside activities such as research and marketing, and should be reviewed with the same rigour as other such investments.

“It is shareholders’ responsibility to assess management’s effectiveness in making these decisions over time.”†

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