Big Bonuses? Who cares?

Feb 23, 2012

The recent press and media coverage of the furore surrounding bonus payments to executives and others within the banking sector has highlighted the contractual relevance of pay structures and procedures to any employment contract, as well as the overall psychological impact of large bonuses being paid at such levels.

A pay structure is a grouping of pay grades that link related jobs within a hierarchy to provide a consistent framework for the implementation of reward policies within an organisation. Pay structures may be designed to align the organisation’s attitude towards the reward of the employees with the business strategy of the organisation, such as to encourage high levels of performance, to bring order and clarity to the management of pay increases and career progression and equally importantly, to help ensure fairness and lawfulness by adopting an approach that avoids gender or other types of discrimination in pay.

The bonus payments made to senior executives often incorporate a separate pay structure or arrangements and, as in the case of the banker’s bonuses, will often be determined by a special remuneration committee. In such circumstances, the contractual position is therefore that the award of the bonus is often a discretionary decision by the committee but is normally calculated against a set of payment trigger points based upon measurable performance targets. These will either be an overall business performance target being met or more focussed assessments of a division or team performance indicator. In many cases the executive will always be eligible for a bonus payment but will not know the level of the payment until the committee’s decision is reached. However, the fairness of the calculation of the bonus is not the only factor that generates a reaction from other employees

Much of the disquiet in recent months in the banking sector has emanated from the gross disparity between the earnings of the top level executives within the organisation and those of the employees at lower levels and whose earnings do not have the potential to be supplemented via bonus payments. When such bonuses are set against a background of job losses and other cost reduction exercises the psychological impact of the bonus payment at the level that have been reported is felt more acutely by ordinary employees.

This impact can of course be felt by all types of business in some form or another and should be a consideration of any organisation in assessing executive pay and bonuses and in ensuring that the pay at the top of the organisation is aligned objectively with the pay at the other end of the scale.

Qdos can advise on the pay and bonus structure that is best for your organisation and can assist you to  realign if necessary contractual pay and bonus benefits across your business to improve fairness and to reward employees in line with business performance at any point in time.

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