Analysis of Bonus Payments is revealing

The current public debate about the merits – and morals – of the pay increase awarded to the Chief Executive of Fonterra also highlights another significant element of pay practices in New Zealand: the scale of Bonus payments apparently also on offer to many employees.

I do not intend to debate the merits in any individual case: that is rightly a matter for the Board and management of the organisation concerned.

The reported widely available Performance Incentives (a.k.a. Bonuses) do raise an interesting point however: is the scale of such payment also generous?

The recent completion and release of our September pay survey results provides an ideal opportunity to examine the level of Bonus payments in more detail, using up to date pay data.

There is of course a long-running debate as to whether or not the availability of Bonus payments has any impact on performance. Regardless of which side of that debate you sit on, one thing is clear: the availability of some form of Bonus payment has become an expectation for many employees, and as a result is a common element of many packages.

This is borne out by the latest results:

Top Executive Bonus payments represent just 71.7 percent of the maximum Bonus available

Top Executive Bonus payments represent just 71.7 percent of the maximum Bonus available

  • At Top Executive level (including CEOs) over 41 percent of employees have access to some form of Bonus payment
    • On average the maximum level of payment available represented 17.0 percent of the Total Remuneration package
      • Note however that not all Bonus programmes specify a maximum payment; many are open-ended, with the level of payment determined by other agreed factors.
    • General Staff Bonus payments represent just 53.6 percent of the Maximum available

      General Staff Bonus payments represent just 53.6 percent of the Maximum available

      At General Staff level the proportion of the national sample with access to Bonus payments was lower, at 16.4 percent nationally

      • On average the maximum payment available represented 8.8 percent of Total Remuneration
      • Average payment made however was also lower, representing just 4.6 percent of Total Remuneration
      • On that basis the average payment made represented just 53.6 percent of the average payment available.

There is of course a wide range of different constructs on the way in which bonus programmes work in different organisations; it is beyond the scope of this post to try to identify that variation.

Regardless of those differences however, in all cases it is relatively straight-forward to express the levels of payment made (and the maximum payments available) as a percentage of Total Remuneration. This provides a basis for a more detailed examination of underlying patterns than that represented by the average figures discussed above.

The two charts accompanying this post show the distribution of Maximum payments and actual Bonus payments in bands, providing a visual overview of both the level of payments typically available, and the distribution of those payments. Key points to emerge from that are:

  • Not surprisingly the range of payments available to Top Executive staff is significantly wider than those available to General Staff
    • For Top Executives a significant portion of the sample have access to Bonus payments which fall between 25 and 50 percent of Total Remuneration
    • For General Staff the highest range with a visually significant sample is payments between 15 and 20 percent.
  • As noted, average payments received are lower than the maximum available for both groups; this is readily seen in the charts:
    • The “peak” of the Bonus Paid series on both charts is to the left of the peak for the Maximum Bonus series
    • In both cases the Bonus Paid bars to the left of the Maximum Bonus peak are higher than the corresponding Maximum Bonus bar
    • Clearly a significant portion of each group is being receiving Bonus payments which are in the band below their Maximum payment available.

To summarise – and to return to my original question – are the levels of Bonus payments in NZ excessive?

Average Bonus Paid is noticeably lower than Average Maximum Bonus Available

Average Bonus Paid is noticeably lower than Average Maximum Bonus Available

I don’t think so. By international standards, a potential Bonus payment representing just 17.0 percent of Total Remuneration for Top Executives would seem to be conservative, particularly when it is also acknowledged that close to 60 percent of the sample have no Bonus payment available.

The problem is of course, that the high profile cases reported typically report on the “dollar value” of the payment – and that inevitably seems excessive when based on what is perceived to be an already high Base Salary.

At General staff level, current practice is also conservative. With just 16.4 percent of the sample having access to Bonus payments in some form, the average payment received represents less than 5.0 percent of Total Remuneration. But even that is higher than the average increase (3.4 percent) being received by many people at this level.

September survey Results:

Results of the MHR RemData remuneration survey were released to licensed users on 11 September 2015.

Contact MHR Global should you wish to discuss access to these results.


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