Survey: For the fifth straight year, bonus funding is down

Dive Brief:

U.S. employers aren’t expecting to fully fund their annual employee bonuses in 2015, marking the fifth consecutive year that annual bonus pools will be below target, according to a new survey by global professional services company Towers Watson.
Even as companies are not fully funding their bonus pools, the survey found a majority of employers are having difficulty both attracting and retaining critical-skill employees, reflecting a rise in talent mobility.
The Talent Management and Rewards Pulse Survey found that U.S. companies' average projected bonus funding for current-year performance is 89% of target. Last year, these same organizations funded their plans at 93% of target level. Since 2005, U.S. companies have fully funded their bonus pools only twice.

Dive Insight:

Interestingly, the survey also found 30% of employers plan to give bonuses to employees who fail to meet performance expectations, the lowest performance ranking possible. While some of these organizations give the same payout to every employee regardless of their individual performance level, other employers that pay bonuses to employees with the lowest rating typically pay them around 65% of their target payout. Conversely, employees who far exceed performance expectations are in line to receive bonuses around 19% above the target amount.

"Employers are continuing to take a conservative approach to funding their bonus pools,” said Laura Sejen, managing director at Towers Watson, who notes that funding for incentive pools is generally tied to a company’s financial performance. “While most incentive programs are designed to recognize and reward employees for individual performance, the fact that some companies continue to deliver substantial bonuses to weak performers raises questions as to whether they are investing their bonus dollars as effectively as possible or truly holding workers accountable for performance.”

The survey also found the number of employers having difficulty retaining critical-skill employees has risen sharply in the past two years. More than half of respondents (52%) are reporting difficulty keeping critical-skill employees, compared with 41% in 2013. At the same time, two in three employers (66%) also reported having problems attracting critical-skill employees. Difficulty attracting these workers has stabilized after rising steadily since the end of the recession.

"Employers need to ensure they don’t underestimate the role of pay, career advancement opportunities and challenging work in attracting and retaining critical workers,” said Sejen.