Bonus schemes still in use by 80% of firms

The majority (80.3%) of employers are still operating bonus or incentive schemes, according to recent research from Personnel Today‘s sister publication IRS Employment Review.

The survey of 122 organisations – covering 599,800 employees – showed that bonus schemes are used by 91.3% of manufacturing and production sector respondents, and 83.1% of private sector employers, compared with 50% of public sector respondents. And about one-third of employers that currently did not have a bonus scheme were planning to introduce one.

In the midst of the economic downturn, bonus schemes have become a key reward tool for many employers.

Employment law specialist Pam Loch, commenting on website HR Zone, said: “During a recession, employers will want to retain the best employees, and to achieve this they will still have to consider the overall packages they offer their staff. Incentivising their employees will remain an important, if not [the] most important, factor in managing business through tough times.”

However, the economic downturn has had a significant impact on the value of such payments, with fewer than one in five respondents (17.9%) expecting this year’s bonus pot to be any bigger than it was in 2008.

The most common type of bonus scheme is one that measures a combination of company and individual performance, offered by 44.9% of respondents with a scheme. The most common type of scheme among public sector respondents are individual performance bonuses, used by 75%. Private sector respondents preferred schemes linked to a combination of company and individual performance (52.4% of manufacturers and 47.8% in services), followed by company performance (33% and 20.3% respectively).

More than half (53.7%) of respondents either ‘agreed’ or ‘strongly agreed’ that their organisation’s bonus scheme had had a positive impact on company performance.

However, the objectives behind bonus schemes varied widely between sectors. Manufacturers’ main aim is to improve individual performance (85.7%), while the goal in services is to improve company profitability (73.5%). And in the public sector, respondents were seeking to improve individual performance (62.5%) and promote sustained high performance (62.5%).

The most common type of bonus payment is a percentage of salary, used by 68% of respondents with a bonus scheme. This is followed by variable amounts (22.7%) and flat rate payments (14%). The remaining 9.3% awarded salary increments, and bonuses as a percentage of company profits. Three-fifths (60.8%) said their organisation placed a ceiling on bonuses, while bonuses at the remaining 39.2% remain uncapped.

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