Why it is time to kill the bonus
Widening Earnings Gap - A Growing Problem

A Small Step in the Right Direction

Small Steps HR Magazine has recently published research data from Towers Watson indicating that senior managers earned 35% of their base pay in bonuses and shares in 2009 compared to 45% in 2008. This certainly seems like a step in the right direction, but is it the start of a trend?

It will be interesting to see what the figure is for 2010. It is a pity we will have to wait almost a year to find out.

However, the really disturbing aspect of the report is that for middle managers the comparative bonus percentages were 13% and 16% respectively, compared to a constant 10% for lower level employees. It is no wonder that there has been a widening gap between the rich and the poor with the rich getting richer while the poor get poorer.

Hoefully the trend will continue. But I would not count on it. Few are challenging this disparity or the inequity of it. Least of all the HR profession. To see what this means you just have to look at the following comparisons:-

  Average worker pay - say £20,000 p.a.  - Bonus £2,000
  Average middle manager pay - say £40,000 p.a. - Bonus £5,200
  Average executive pay - say £1,740,000 p.a. - Bonus £626,400 (based on research that executive pay is currently 87 times the average worker wage).

It is no wonder the employee engagement is a problem. Encouraging workers to be more productive is, in their eyes, nothing more than self-interest on the part of their bosses to make them better off.

There is nothing inherently wrong in sharing profits among the people without whom they would not be possible. But surely the distribution rate should be the same. After all the different capabilities and thus presumably the value of the different contributions is already recognised in the base salaries. At 10% the executive bonus would still be a not too shabby £174,000 or the price of an average house.

Consequently I would suggest that, if you are going to insist on paying bonuses, you should ensure you use a standard bonus percentage rate applied throughout the organisation. Even better though is the idea of employee ownership with a labour dividend, which dispenses with the idea of a bonus altogether and instead shares profits equally amongst employee owners. That would:

  •   Ensure better value for the payroll spend
  •   Eliminate the manipulation of performance measures to safeguard earnings
  •   Ensure there is no unmerited payment when results do not justify it
  •   Likely guarantee more consistent results over time
  •   Do more than any other single action to maximise employee engagement.

It would be another small step in the right direction for man, but a large one for mankind.

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