Questioning the value of bonus plans

The dodo bird. The dodo bird.

Are employee bonus plans about to go the way of the dodo bird?

Maybe they should.

A Towers Watson study turned up evidence that employers may not be getting even partial value from these plans, and, perhaps worse, that employees don’t really value them anyway.

T-W’s Talent Management and Rewards Pulse Survey of 121 corporations was designed in part to determine whether employers were able to fully fund their incentive plans. Only twice since 2005 had this been the case, and 2013 will be yet another year of unfulfilled funding promise, the study found.

“Companies’ average projected bonus funding for current-year performance is 87 percent of target,” the study reported. “That is the same as last year’s target level and below 2011’s 95-percent target level.”

But more insightful were the responses about who is receiving bonuses from annual pools, and what the folks who get the extra dough think of the concept.

T-W says 24 percent of respondents agreed that they will award some incentive payout to employees even if they fail to meet performance expectations. Almost 20 percent admitted they don’t set differences in target payouts based on employee performance.

On the bonus-receiving end, many employees no longer view these bonuses tied to company and individual performance as a huge perk.

“In fact,” the survey concluded, “fewer than half of the employees who participated in (a prior TW study) agreed that there is a clear link between their job performance and their pay, or that high-performing employees in their organization are rewarded for their performance.

Laura Sejen, Global Rewards leader at Towers Watson, suspects that at many companies these bonus plans have outlived their usefulness.

“It appears that some organizations are simply paying for status quo, treating their annual incentive plans as an entitlement program rather than one that should reward employees for their performance and contribution to their organizations,” Sejen said. “Add to that the fact that some employers are not distinguishing enough in payments made to top and average performers.”

The bottom line?

“Companies may need to take a hard look at the design and delivery of their incentive programs to ensure they are meeting their objectives within the total rewards portfolio,” she said.

 

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