Loyalty bonuses have risks

Reward isseus are top of the HR agenda, with loyalty payments and executive pay hot topics. But experts warn that companies have to look beyond pay and focus on total reward packages

One-off goodwill payments can boost loyalty, but organisations must beware of employees who simply walk out with the money. They should also ensure expectations are not raised unrealistically, a reward expert has warned.

The call came after it was announced that employees at Saga, the holiday and insurance group for the over-50s, are to receive £1,000 for every year of service, after a £1.35bn management buyout.

The move, estimated to be costing the company £16.5m, will see an average payout for staff of about £5,000. But 37 of the 2,500-strong workforce have been at the company for more than 20 years. Staff will also be given shares in the company under an employee scheme.

Fiona Neathy, principal re-search fellow at the Institute for Employment Studies, said goodwill payments can increase loyalty, but there are also inherent risks – although small – with one-off payouts that are not linked to output or performance.

“Employees could end up leaving the company, although there may be a loyalty clause associated with the payment,” she said. “There is also a risk of raising expectations among staff.”

A survey of 360 HR professionals, conducted by The Work Foundation, showed three-quarters of UK employers have a bonus scheme, but only 38 per cent offered bonuses to the whole workforce.

“There are potentially a lot of inequalities in bonus schemes,” Neathy said. “If companies are not careful, they could be vulnerable to equal pay claims from staff.”

 Bumper staff payout packages

  • About 1,500 drivers at London cab firm Radio Taxis landed windfalls worth nearly £5,000 in June after voting to demutualise the business.
  • Eaga Partnership, a social enterprise company, awarded its 750 staff a bonus worth more than two-and-a-half months’ salary.
  • Staff at DIY chain B&Q shared a record £34m bonus payout. About 34,000 employees have accumulated an average payout of 10 per cent of their salary.
  • After its flotation on the stock exchange last month, car insurer Admiral handed employees at call centres in Wales average windfalls of £39,000, with even the most junior workers receiving up to £10,000.

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