Aon Hewitt: Bonus schemes in Europe back on track

23 September 2014

According to recent research by Aon Hewitt, bonus schemes are back on track and some companies are even increasing their payments made. The study also shows that these bonuses are harder to earn and often are linked to corporate performance thresholds that have to be achieved, such as revenues.

The recently released ‘European Bonus & Sales Compensation Survey’ carried out by global HR consulting firm Aon Hewitt examined the latest trends and features of variable pay and sales incentive schemes across 15 European countries, including the UK, and was carried out in Q1 of 2014. The survey targeted several aspects of bonus and incentive plans, including objectives and success measures, funding, triggers, performance criteria and pay-outs and planned changes and improvements. For the bonus section, data from 48 companies in 21 sectors is covered.

According to Aon Hewitt, bonus plans and levels of payments are again increasing, albeit with stricter rules and better targets, and the UK is taking the lead. “Since the start of the financial crisis in 2008, bonuses have received a generally bad press and the financial services sector has seen UK and EU regulators move to cap and defer high annual bonus payments. However, our latest study of bonus plans throughout all levels of industry in Europe finds pay on the increase in every other sector,” says Andrew MacLeod, Head of Pay Research at Aon Hewitt.

Bonus plans increasing again

Even though bonus schemes are increasing again, these payments are becoming increasingly hard to earn. The consulting firm states that this can be seen, among others, as a legacy of the difficult recession years. Most companies nowadays have minimum corporate performance thresholds, such as profit levels, which have to be achieved before bonuses are awarded, and companies that exceed their targets are more likely to have well-aligned bonus plan. 51% of the companies use financial measures as one of the key objectives, resulting in zero bonus payments last year at 74% of the companies.

Individual performances

The survey also shows that high individual performances are increasingly well rewarded and 96% of the participants in the survey stated that they found their bonus plans well aligned with the business objectives. And a significant minority of firms is increasing their bonuses and even removing the maximum on the payments, mostly in sales incentive plans. More and more companies are focussing on improving their bonus designs and making them more likely to succeed. Respondents indicated that they believe a successful plan needs to have a narrow focus on a few key performance measures, and top-level leadership support with goal and target setting, and world-class communication.

MacLeod continues: “Now, as we emerge from a recession and move into another economic phase, European companies are more aware of the limitations as well as the advantages of bonus and incentive plans. They are working hard to make payments more genuinely variable and performance-related, and making certain that they are rewarding both corporate and individual performance more effectively.”