Poor employee performance behind non bonus payment

Equal pay

EXCLUSIVE: Nearly three-quarters (74%) of respondents did not offer any bonus payments as a result of poor individual perfomance in 2014, according to research by Aon Hewitt.

Its European bonus and sales compensation survey 2014, which surveyed more than 110 organisations across 15 countries and outlines employers’ approaches to pay, found that this is up from 49% in 2011.

The research also found that more than a third (36%) of respondents would not deny a bonus award due to employee absence.

However, 42% of respondents have set criteria and communicated their policy on denying awards due to absenteeism to employees.

The research found that the link between variable pay plans and performance management process has decreased from 66% in 2011 to 59% in 2014.

Respondents are also more rigorous about reviewing plan effectiveness, with some 96% having a formal or informal review process in place.

The majority of respondents offer bonus plans to their entire organisation (40%), compared to 2011 where most participants reported that bonus plans covered only corporate employees (83%).

In addition, nearly half (46%) of respondents have only one sales incentive plan in place, while 29% have more than five or more plans.

Incentives are most commonly paid out quarterly (34%) and monthly (30%). Only a quarter (25%) pay out sales incentives annually.

Organisations were also asked to indicate their primary, secondary and tertiary objective for their variable pay plans.

The research found that financial (32%) and behavioural measures (21%) were the most common objectives for variable pay plans, while 6% said it was to increase productivity (6%).

Nearly two-thirds (63%) of respondents cited realistic goals and targets remain the key factor contributing to the success of plans, followed by the support of executives and management (46%), and employee ability to impact results (46%).

The research also found:

Across Europe, organisations plan to review the performance metrics (42%) and measures of their variable pay plans, rather than making changes to plan objectives (10%).

Andrew MacLeod, head of pay research at Aon Hewitt, said: “With the majority of companies, bonus plans now cover the entire organisation, a significant change since 2012.

“A shift of more pay costs from fixed to variable and reinforcing key business goals, such as customer service, are reported by participants to be driving this popularity.

“Rather than debating the philosophical point of whether or not bonus plans work, organisations seem to be more focused on assessing whether they are working in reality and improving their design to make them more likely to succeed.

“94% of our respondents now have a review process in place, with a big increase in the use of cost and benefit analysis.

“Now, as we emerge from a recession and move into another economic phase, European employers are more aware of the limitations as well as the advantages of bonus and incentive plans.

“They are working hard to make payments more genuinely variable and performance-related, and making certain that they are rewarding both corporate and individual performance more effectively”.