94% offer annual bonuses to staff

The vast majority (94%) of respondents offer an annual bonus to a broad range of their employee base, according to research by Towers Watson.

Its research, which surveyed 120 employers, found that, despite challenging economic conditions, respondents said bonus payouts have remained at, or near, target levels over the past few years.

The average short-term bonus payment in 2011 was 100% of target, while 2012 came close at 90%. Respondents anticipate a similar figure in 2013.

Almost half (49%) of respondents still pay out pro-rata bonuses to ex-employees, either calculated when the employee leaves the organisation (20%) or paid out on the organisation’s normal payment date (29%) even if the employee has resigned months beforehand.

The research also found:

  • 62% of respondents’ employees are either automatically eligible to be in a bonus plan or become eligible once they reach a certain grade or band, rather than having to wait for the completion of a probationary period or fixed length of service.
  • 60% of respondents offer tiered bonus plans, which contain several levels of performance measures.
  • Only 8% of respondents defer their employee bonuses for any length of time.

Joris Wonders (pictured), director of the UK reward practice at Towers Watson, said: “We have seen a steady expansion in the proportion of organisations offering annual incentives compared to equivalent studies conducted in 1999, 2004 and 2009.

“Not only is the proportion of organisations offering bonuses on the rise, but the breadth and depth of eligible workers also continues to increase.

“When designed and implemented successfully, short-term variable pay can be very effective in incentivising employees to perform. However, when organisations pay out bonuses regardless of individual or financial performance the rewards can be perceived as an entitlement, rather than an incentive, and lose their value as an employee motivator.

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“We know that organisations that can encourage high performance from employees perform better financially, so the business case for creating a strong link between pay and performance is clear.

“It can also help organisations to manage their total reward costs, develop defined and measurable objectives for employees and help sustain workforce engagement.”