Performance-related pay replacing the annual bonus

Nov 16 2005 by Brian Amble Print This Article

If you are expecting a Christmas bonus this year, don't hold your breath. Six out of 10 companies globally will not be dipping into their pockets this year, although three-quarters are planning to host a party for the holiday season.

The news that holiday bonuses are not so traditional anymore comes in a global survey by HR services firm, Hewitt Associates.

Instead of an annual bonus , it found, employers are increasingly opting for performance-based bonuses that must be re-earned annually. These variable pay programmes are now offered by almost eight out of 10 employers.

"Employers recognize that the value in tying awards to performance, as opposed to the holidays, better connects employees to the company's goals and objectives, eliminates 'entitlement' issues, and leads to increased productivity and improved business results," said Ken Abosch, a business leader for Hewitt Associates.

"Organisations remain under tremendous pressure to deliver results, and variable pay plans continue to be the most effective way to reward employees for their role in helping the company succeed."

Hewitt's study reveals that nearly half of companies surveyed have never offered a holiday bonus, while one in seven have stopped doing so over the past few years.

It also emerged that in light of recent events such as the 2004 tsunami and this year's hurricane disasters, almost one in 10 organisations plan to donate some or all of the money they would have spent on holiday bonuses this year to charity.

Companies said they eliminated holiday bonuses primarily due to cost or entitlement issues and because of the introduction of pay-for-performance programmes.

Conversely, of the four out of 10 companies that will offer a holiday bonus this year, nearly half will give employees a gift of food (e.g., turkey or ham), more than a third plan to provide gift certificates, and only just over one in 10 (13 per cent) will give cash.

But most people can expect some sort of company celebration this year, with nearly three-quarters of organisations globally planning to host a party this holiday season - rather higher proportion than in the UK, where fears of bad behaviour and its possible legal consequences have persuaded a growing number of employers not to organise a formal office party.

"Employers are finding performance-based programs to be more motivating and meaningful to employees than simply awarding a holiday bonus," added Ken Abosch.

"If employees meet their individual and company goals, they can dramatically increase their compensation, and, in most cases, the payout can be well beyond a traditional holiday bonus."