Bonuses More Focused on Performance

July 7, 2010 ( - A report by global management consulting firm Hay Group reveals that 39% of companies across the world have or plan to increase the proportion of variable pay in their employees’ pay packets.

However, with new bonus prospects comes a renewed focus on performance, as 47% of companies surveyed state they have increased or are planning to increase performance thresholds. Half (51%) of companies surveyed said they are using more financial metrics in performance-based pay, such as revenue, profit and sales, with just 9% placing greater emphasis on employee satisfaction.   

The main reason cited for changing variable pay programs is strategic, with 61% of companies saying that the most important driver for the change was better alignment of variable pay programs with the business strategy, according to a press release. This is closely followed by improving organizational or team performance (40%).  

Only 5% of companies consider risk reduction as a major driver of change.  

The report reveals that variable pay has become a board level issue with 55% of organizations indicating that the board has become more involved in the decisionmaking around variable pay. Increased attention is also being paid to the effective communication of reward programs with almost 60% of companies changing the way they convey these to employees.   

Yet, just over half (58%) believe their variable pay schemes are understood by employees and only a third (34%) believe their schemes are communicated effectively by line managers.  

With variable pay policies in place and the mechanics of how they will work agreed, businesses will need to focus on measuring the effectiveness of these policies and the return on investment from their reward spend, the press release noted. The report shows that one in five (19%) companies have already begun to do this in the last two years and nearly twice as many (36%) are planning to make these changes in the next two years.