IDS HR Study 843, April 2007

Bonus schemes

• Highlights the main aspects of bonus scheme design
• Covers a wide variety of multi-factor arrangements (excludes sales incentives and executive bonus plans)
• Examines practical aspects of implementation such as measurement levels, factors, targets, payments and employee communications
• Provides details of the main bonus scheme in 26 named organisations

An appropriately structured bonus scheme can promote desired behaviours and encourage the achievement of business objectives. Many schemes have multiple factors, allowing a number of measures of organisational and individual success to be included. Several key performance areas can be covered (eg productivity, quality, sales and customer service), with each factor weighted according to its importance to the company. Multi-factor schemes of this type also have a great degree of inherent flexibility, as the measures they use can be modified or adjusted as necessary from year to year to take account of changing business priorities.

For any bonus scheme to be successful, however, it is vital that its aims are communicated effectively and that the link between performance and reward is clearly understood. Targeted communications – such as guidance notes, leaflets, staff briefing sessions and publication of information on the intranet – can help clarify the working of a scheme.

The Study provides details of how bonus schemes work in practice at 26 named organisations across both the manufacturing and service sectors. Each of these includes information on:

• company background
• main business objectives
• coverage of the bonus plan
• operating levels
• the factors (performance measures) selected
• target-setting
• frequency and level of payments
• methods of communication.

For information on the IDs Executive Compensation Review research report on Management Bonus Schemes, click here