Bonuses Are Back
A new survey finds organizations' use of bonuses to attract and retain talent is at an all-time high. But compensation experts caution that bonus programs need to be well-planned and fully transparent in order to be effective.
By Michael J. O'Brien
Bonuses are back!
At least that's according to a new WorldatWork survey, titled Bonus Programs and Practices, which finds 74 percent of 811 members polled reporting the use of sign-on bonuses in their organizations in 2014, up from 54 percent in 2010.
Similarly, the survey from the Scottsdale, Ariz.-based nonprofit HR association found spot bonuses rose in usage, from 43 percent in 2010 to 60 percent in 2014; and retention bonuses jumped from 25 percent in 2010 to 51 percent in 2014. (Referral bonuses also saw a slight uptick from 2010 to 2014, rising from 60 percent to 63 percent.)
"The downward trend in program usage for all four bonus programs measured -- which began with the 2009 recession -- has been reversed," according to the press release announcing the findings.
Rose M. Stanley, total rewards practice leader at WorldatWork, believes the uptick in sign-on, retention and spot bonus programs indicates that the war for key talent is heating up as the economy improves.
The fact that all types of bonuses rose by such wide margins in the survey "was a big surprise," she adds.
"To have them come back up, that can be expected," she says, "but they were significantly up."
Stanley views the rise in bonus usage as a sign organizations are concerned they won't be able to attract the talent they need, and, once they're aboard, entice them to stay.
"There are lots of 'levers' for employers to choose from, and [a bonus] is one of them," she says. "We've seen pretty flat merit increases recently [approximately 3 percent by most estimates], so what is the value proposition to entice someone to come in and stay with an organization?"
"Over the past 5 to 6 years," she says, "the money lever has not been pulled very hard. Organizations may be working on creating nice work environments and development opportunities for their workers, but they also have to take a look at bonuses."
Stanley says the survey's results make it look like more organizations "may be loosening up their purse strings, but they are doing it with more directed, more managerial-based decisions, as opposed to just merit increases across the board."
John Bremen, managing director at Towers Watson's Chicago office who previously served on WorldatWork's compensation advisory committee, says he's not surprised by the survey results.
"Not even a little," he adds.
What's interesting, he says, is the real story behind these numbers.
"Overall, the labor markets are still not as tight as they were in 2008," he says. "People assume the war for talent is over. But . . . companies are having just as difficult a time attracting critical talent as they were before the downturn. Even though it may be 'easier' to find rank-and-file employees now, it's actually as difficult to find certain specialized roles as it was before 2008.
"The signing bonuses and spot bonuses you're seeing are all efforts of companies to deal with that," he says. "There's a cadre of talent -- not just senior people -- that are just difficult to find right now," including technical engineers, software developers, and certain tech roles in the healthcare space.
"Companies may be laying off thousands, but they still have open reqs they can't fill," he says.
To address their talent needs, Bremen points out that companies have the ability "to do some pretty sophisticated segmentation analysis" of their workforces in order to figure out what both applicants and employees want, and then create programs that are tailored to the needs of different groups.
"You'd never give a sales-bonus program to accountants, for example," he says.
The survey also found the average number of bonus programs offered by organizations is now three -- up from 2010's average of two programs.
Alan Johnson, managing director of Johnson Associates, a compensation consulting firm in New York, says the increase in bonus programs offered is just another sign of growing organizational complexity.
"These companies have gotten so big that you've got different businesses and geographies, so you need different bonus programs," he says. "And having separate plans makes the plans better, but it also makes it clear what's going on. It helps to explain [how bonuses are distributed] both to participants and the board."
Steve Gross, a senior partner in the rewards segment of Mercer’s talent practice in Philadelphia, says referral bonuses, which rose by the smallest amount of any of the bonus programs, still hold great value for organizations.
"Referral bonuses are always a good idea," he says, "as candidates have a better understanding of the organization and culture, and the referring employee has some ownership to help the new employee be successful."
In the end, though, the way an organization utilizes bonuses is a reflection of the company's understanding of complex issues, says Towers Watson's Bremen.
"As companies become more sophisticated," he says, "so do their workforces, and their bonus programs need to be, as well."
Send questions or comments about this story to firstname.lastname@example.org.