HR & Management
Working out the right bonus scheme structure for my business
7 min read
06 February 2017
While financial incentives have come under fire of late, Rob Hunter spent some time working out the most suitable bonus scheme structure of his firm.
The start of a new year always brings with it the necessity for fresh thinking on how to reward and incentivise our fantastic team at Hunterlodge. We utilise a breadth of incentives both financial and personal to enrich the work/life balance of our employees – from paid CPD days off, a success junkie awards system, KPI fulfilment bonuses and the traditional bonus scheme structure.
A structured bonus scheme is always a complex issue as no one size fits all – each individual will always be motivated by different things and finding a happy medium can be challenging. Over the last 30 years, we have tried the full spectrum of bonus structures, from individual or department bonuses, pitch win and production linked bonuses to no bonus at all! They are never going to be 100 per cent successful in terms of pleasing everyone – however, the one thing we have learned is that whatever bonus scheme you put in place, it is essential to communicate this effectively and always follow through with your promises.
Research from the Chartered Management Institute’s (CMI) latest Salary Survey has revealed that many bonus structures simply aren’t working – with a worrying misalignment between performance and pay. Managers have seen the lowest rate of pay increase since 2011 whilst 23 per cent of underperforming managers still receive an average bonus of around £4,270. The survey also highlighted that pay is a much bigger issue for employers than previous years with 36 per cent claiming that reward packages are too low to attract quality candidates.
Another recent study by the CMI also stated that British workers are among the most jealous in the world, with one-third of finance professionals believing bonuses given to top earners are unjustified. This sentiment can often lead to resentment and undermine employee motivation, especially when the bonus structure appears to be linked to short-term metrics rather than longer-term business goals.
The advertising industry isn’t immune to controversial bonus payments either. Martin Sorrell, WPP’s CEO, received a staggering £70.4m compensation deal in 2015, which forced a backlash of negative discussions across national media. Even the John Lewis Partnership, usually heralded as a shining example of successful company bonus schemes, is showing signs of change with staff being warned that their annual bonus will be “significantly lower” than last year – the fourth year running that this has been cut. However, the company has refuted that this means the company is a less attractive place to work, arguing that this change has been offset by increased investment into their pension scheme.
So what were the considerations we looked at when considering a successful bonus scheme for Hunterlodge? As an integrated agency that covers a number of services including creative, digital, media and strategy, a major consideration was whether we set up a company-wide bonus scheme structure that was linked to the overall financial health of the company or should we be looking at target related bonuses bespoke to individual departments.
Some companies prefer to scale bonuses with higher rewards for high performers, although this is much easier to determine fairly within a traditional sales environment. For Hunterlodge, contributing to the success of the company comes from all departments, not just from the new business corner – so this would need to be carefully linked into objective-led KPIs with no room for ambiguity. And should the bonus scheme structure be monthly or quarterly, which has the inherent dangers of fluctuations in profit, or annually, which runs the risk of staff losing sight of their performance reward.
The bonus scheme structure also needs to be set up with the needs of the employer in mind. Bonuses need to be built into your financial strategies for the year and be linked to some sort of change that is required in order to push that business forward. It’s not about the expectation of a cash bonus as the norm – it’s about everyone working together to go over and above the norm and reach targets that will have a sustainable effect on the future of the company.
Despite having debated all the options available to us a number of times, we have decided to stick with our current bonus scheme structure – a company-wide one linked to the financial health of the company and yearly profit targets. This is communicated clearly in our business plan that we launched to the entire company in January, with the company’s financial health discussed on a monthly basis at individual one-to-ones. This ensures everyone is working together and is constantly updated and engaged in how they can help contribute to this target – and how this links in to our larger business objectives for the year. We can’t guarantee that every single one of our staff will be 100 per cent satisfied with the scheme (although I think we get pretty close!) – but we can guarantee that the benefits are clear and transparent to all and that we will deliver on our bonus promises at the end of the year.