While North American employers do not expect to fully fund their annual employee bonus programs this year, some will give incentive payouts even to workers who fail to meet performance expectations, raising doubts about whether companies get a good return on their investment in bonus plans.
As North America’s economy continues to recover at a modest pace, the average projected bonus funding of the region’s companies for current-year performance is only 87% of the target, according to a 2013 Towers Watson survey.
This is the same as last year’s target level and below the 2011 target level of 95%.
Since 2005, North American employers have been able to fully fund their bonus pool only twice—in 2006 (102%) and 2010 (111%).
Apart from funding, the design of bonus programs in the United States and Canada is potentially an issue, too, according to Towers Watson. About one-quarter of survey respondents say they will give some incentive payment to employees who fail to meet performance expectations.
Additionally, 18% of companies do not set differences in target payouts based on employee performance.
Instead, funding for bonuses is generally linked to the company’s financial health, according to the study.
Other recent Towers Watson research indicates that staff members do not see annual incentive plans as effective. The figures also show that these plans are neither a key driver of sustainable engagement nor a strong source of attraction and retention.
“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,” says Laura Sejen, global rewards leader at Towers Watson. “Add to that the fact that some employers are not distinguishing enough in payments made to top and average performers.”
A total of 121 organizations—91 from the United States and 30 from Canada—participated in the survey.
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