Bonuses most popular in B.C. and smaller companies

Across all metrics, 28.1 per cent of employees received an average bonus of 4.6 per cent

A worker in British Columbia, in the durable goods manufacturing sector and in a small company, is the most likely to receive a short-term incentive — and to get the largest amount too — according to a survey by Towers Watson. The 2010/2011 Canadian Survey Report on Office Personnel Compensation surveyed 228 organizations across the country reporting data on more than 24,000 employees including those in marketing, legal, accounting, information systems and human resources.

“We’ve been going through a lot of analysis in terms of looking at some data and highlights and these numbers are pretty typical in what we’ve been seeing with clients,” said David Gore, senior consultant at Towers Watson.

Bonus and profit sharing payments averaged 4.6 per cent of base salary for all salary levels combined with an average of 28.1 per cent of office personnel receiving a payment.

There was great variability between the four salary distinctions in the report (below $30,000, between $30,000 to $39,000, between $40,000 to $49,000 and above $50,000) and those in the $30,000 to $39,000 range were the most likely to receive awards with 34.1 per cent of employees receiving an average award of 4.4 per cent of base salary. 

At computer security software company Sophos, with headquarters in Oxford, England, and the Canadian branch in Vancouver, all employees are eligible for the annual short-term incentive program which is 10 per cent of base salary (more is offered for management and executives).

The incentive is first dependent on the company reaching its targets for the year and, from there, the amount is based on individual performance, said Laura DiFelice, human resources manager at Sophos.

“We wanted to give every employee the opportunity to overachieve,” said DiFelice. “In 2008, we changed from a standard model of everyone getting the same bonus based on how the company does to applying performance factors in the calculation.”

Every employee is evaluated on eight points, five dealing with goals and achievements and three looking at commitment and approach to work, she said. A salary panel of managers, HR and department heads determine the bonus for each employee so it is “a fair playing field,” said DiFelice. The bonus can be as low as zero per cent or as high as 15 per cent of base salary.

The survey found the largest short-term incentives were paid to 31.7 per cent of employees in the durable goods manufacturing sector averaging 5.7 per cent.

“In that area they probably can measure more results in terms of their processes such as quality control, waste management and expense management,” said Pat Allinson, owner of The Compensation Company in Markham, Ont. “Manufacturing in Canada is a little tough right now and this (short-term incentive) might help in promoting the behaviours to support positive outcomes.”

The utilities and energy sector followed at an average of 5.3 per cent paid to 40.1 per cent of employees.

The other industry sectors of non durable goods, services, insurance, health, retail and wholesale trade and banking and finance gave short-term incentives of less than five per cent.

Employees in B.C. represented the largest group to receive a short-term incentive payment compared to the other provinces and territories, with 32.3 per cent receiving an average  payment of 4.9 per cent.

“It’s more of a cultural thing within the province,” said Allinson. “B.C. tends to be a bit of a leader in terms of how people are paid and the kind of perks and benefits they tend to get, so (short-term incentives) are tied in with that approach.”

Ontario and Alberta followed closely behind B.C. with 31.1 per cent of employees receiving a 2.5 per cent payment in Ontario, and 30.5 per cent of employees in Alberta receiving a 3.9 per cent payment. Manitoba and Saskatchewan fared the worst with only 10.5 per cent of employees receiving a payment in both provinces.

Office personnel in smaller organizations fared better than those in larger organizations, found the report.

In organizations with fewer than 300 full-time equivalents, 48.2 per cent of employees received an average short-term incentive payment of 5.5 per cent. In organizations with 2,500 full-time equivalents or more, 18.8 per cent of employees received an average payment of 4.3 per cent.

“Smaller organizations tend to be somewhat more mobile and flexible in terms of the design of their compensation arrangements,” said Gore. “They will be more generous where they think it’s appropriate to attract and retain the skills they need because they don’t have the depth and range of skills found in some larger organizations.”

Sophos has 1,700 employees worldwide. More than 95 per cent of the 200 employees in the Canadian office received an average short-term incentive payment of 8.75 per cent of base salary in 2009, said DiFelice.

“We want to continue to grow our business and we need to attract the talent that can help us to do that,” said DiFelice. “We need to make sure we have a varied compensation structure that is going to be competitive on a variety of fronts.”

How to design a short-term incentive program

Reasons for implementation: Figure out what outcome the company is trying to achieve with these incentives. Make sure it will increase the behaviours the company needs to increase its bottom line. 

Recipients: Identify which jobs add the most value in helping the business grow and which would lend themselves best to a short-term incentive program. The employee needs to have a “hunter” personality and enjoy having variable compensation attached to the earning potential.

Amount: Take a survey of the industry to identify trends and determine what competitors are offering. Decide what percentage of the base salary will make up the short-term incentive for various positions and what criteria must be met in order to achieve some or all of the award.

Employee control: In order for the incentive to be successful, the employee has to be held accountable for the results and there must be a direct relationship between an employee’s behaviour and the incentive amount. If it’s an indirect relationship, it’s less meaningful.

Commitment: Once this program is implemented, it’s very difficult to take it away without negative impacts. Be fully prepared to put in the work it requires such as updating new criteria, conducting reviews and communicating with employees. 

Source: Pat Allinson, owner The Compensation Company

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