So, the economic crash of 2008 is well documented at this point. Some of you have given up hope of your company or division hitting the 2008 numbers necessary for your annual bonus, while some of you are hoping for a delayed effect - maybe the numbers will hang on long enough for the company to pay out a bonus, even if a partial one. Just maybe...
Here's another trend that's already being documented for 2009 - the elimination of the incentive pay plan, which many of us know as "bonus". Ann Bares of Compensation Force has a nice rundown of the trend:
"Results of a recent Towers Perrin "pulse" survey were released today. There are a number of interesting findings here, but one in particular caught my eye. In examining how companies are likely to respond to the economic crisis in a number of reward areas, the survey asked about plans to reduce annual incentives/bonuses. Survey participants responded as follows:
- Very likely - 18%
- Somewhat likely - 21%
- Somewhat unlikely - 23%
- Very unlikely - 25%
- Too soon to tell - 13%
My interpretation of this - which is important here - is that it indicates plans to reduce the incentive/bonus program and its award opportunities, not merely that the participants are expecting lower payouts due to lower results. The latter makes complete sense, the former - to me - makes very little and prompts concern. According to the survey, 39% of respondents are likely to reduce annual incentive/bonuses and another 13% haven't yet decided. Meaning - again, if I am interpreting this accurately - that over half have not yet determined whether they will follow through on the commitments of their existing incentive/bonus plans."
Ann goes on to voice concerns regarding the fact that companies are looking to reduce the scope of the bonus program and award opportunities, citing the fact that a down economy should have nothing to do with whether companies offer bonus programs. She's right - just because the economy is down is no reason to eliminate the bonus program, even if the economic circumstances make attainment of the payout triggers less likely.
For companies with real bonus programs that trigger payouts based on some combination of attaining revenue and profitability goals, there's no reason to eliminate the plan. However, the revenue and profitability goals embedded in such plans may be less realistic than normal. Think about it - a company that is seeing revenue fall year after year may be super aggressive in setting a goal that suggests revenue will remain flat for 2009 (when projections say revenue will likely fall 10-15%).
But, that doesn't mean they have to eliminate the plan, it just means that employees have to understand that maintaining current revenue trends will take an incredible effort. But, your workforce still needs to know that a great year in a recession will be rewarded.
As to companies who don't tie annual bonus programs to revenue, profitability or some mix thereof, to Ann's point, those really aren't bonus or incentive programs. They're more like a company "holiday ham" program, delivered based on the whims of the company.
The less bonus programs are tied to revenue or profitability, the less understanding employees have regarding how the company is doing. Also, discretionary bonus programs paid multiple years in a row without being tied to numbers are dangerous, since they can become employee entitlements that everyone takes for granted.
Kind of like the company ham during the holidays. There's probably going to be less of those this year as well.
just got me thinking as i read this, and now i'm on my soap box...
most folks with year-end bonuses will pay out at the beginning of 2009 once the books have closed... if bonuses are going to be low? the key will be communication. and the communication should start now, even indirectly, to condition to environment.
i was in a meeting with staff the other week where our ceo was having an open forum... someone asked a question related to expanding one of our benefits more broadly. the ceo was honest and said from a cost perspective, he didn't think it was feasible in the near term. i piped up immediately to say to staff that our ability to add benefits is in their control to a certain extent. not being prudent with overhead costs affects the bonus pool, it affects the bottom line and in turn means we may or may not be able to offer certain benefits they might be clamoring for... which turned into a discussion on ways to cut costs and save the company money. we covered everything from phone calls to travel.
i'm hoping people are having these conversations everywhere... it's a shared responsibility and if folks want a bonus? they've gotta do their part. and as HR pros? how we communicate about it is equally important too...
kinda related and kinda not. but i'm done now.
Posted by: Jessica Lee | Thursday, November 13, 2008 at 03:14 PM