Why your bonus scheme is probably not working [new research]

10 May 2016 -

The 2016 National Management Salary Survey reveals an alarming misalignment between performance and pay

Managers are still being rewarded with bonuses despite not meeting their performance objectives, according to the 2016 National Management Salary Survey from CMI and XpertHR.

The analysis of remuneration data for 105,000 managers and 425 organisations found that more than one in five managers (23%) who fell short of performance expectations in the last year still received bonus pay-outs on top of their basic salary.

The average underperforming manager who took home a bonus received an additional £4,270, or 12% of their basic pay, on average, taking their total remuneration packages to £40,067.

In total, 57% of managers received a bonus over the last 12 months, compared to 54% in the previous year.

CMI chief executive Ann Francke said the findings reveal a costly problem for business that too many employers are failing to address.

“Pay and performance issues in the UK extend well beyond CEO level,” she said. “The truth is that bonuses continue to remain divorced from performance in too many organisations. Fixing the problem means setting clear targets, aligning bonus pay with performance, and being prepared to have difficult conversations with underperformers who don’t measure up.”

Rewards for failure

The problem of rewarding managers for failure is even more acute at more senior levels, with 43% of senior managers who fall short of expectations still banking a bonus in the last 12 months.

Meanwhile, C-suite executives continue to earn a substantially larger part of their pay in bonuses compared to managers. On average, bonuses account for 38% of CEOs’ and directors’ remuneration – equivalent to £55,969.

Across the wider management population, bonuses represent just 17% of pay packages, but there’s been an increase in the average size of bonuses for this group to £11,413 from £8,836 in 2015.

XpertHR content director Mark Crail said: “Employers have reined in a lot of poorly focused executive perks since this survey began back in the early 1970s. Subsidies for school fees and chauffeur-driven cars are not exactly commonplace these days, but the bonus is as significant a part of many managers’ incomes as it ever was.

“Employers have come a long way in aligning pay and performance, but as our research shows, there is still some distance to go to get it right.”

Find out more about the 2016 National Management Salary Survey