North American employers do not expect to fully fund annual employee bonuses this year, marking the third consecutive year and seventh time since 2005 that bonus pools for annual incentives will be below target, according to a survey by Towers Watson.
Additionally, one in four employers will pay bonuses to workers who fail to meet performance expectations, found the Towers Watson Talent Management and Rewards Pulse Survey.
North American companies' average projected bonus funding for current-year performance is 87 per cent of target, the same as last year's target level and below 2011's 95 per cent target level.
Since 2005, employers have been able to fully fund the bonus pool only twice — in 2006 (102 per cent) and 2010 (111 per cent).
"Employers continue to take a conservative approach to funding their bonus pools while the strength of the economy remains both uneven and uncertain," said Laura Sejen, global rewards leader at Towers Watson. "While the vast majority of employers have some type of annual incentive plan, the way some incentive plans are designed and viewed by employees raises the question of whether employers are getting a good return on their investment in these programs."
About one-fourth (24 per cent) of the 121 survey respondents (30 in Canada) will award some incentive payout to employees who fail to meet performance expectations (the lowest ranking possible). Additionally, 18 per cent fail to set differences in target payouts based on employee performance.
"It appears that some organizations are simply paying for status quo, treating their annual incentive plans as an entitlement program rather than one that should reward employees for their performance and contribution to their organizations,” said Sejen.
“Add to that the fact that some employers are not distinguishing enough in payments made to top and average performers. Companies may need to take a hard look at the design and delivery of their incentive programs to ensure they are meeting their objectives within the total rewards portfolio.”
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