Executive Bonuses hit by Covid-19 – but by how much?

Bonus and incentive payments linked to organisation and individual performance and contribution, have long been a feature for a large proportion of executives across all industries. How have those payments fared during the Covid crisis?

I recently commented on how pay increases for Executive staff and general staff nationally had been limited by Covid-19 restraints, but were now lifting again, drawing on MHR Global’s September 2021 pay survey data to look at trends since the period immediately before Covid struck. (see “Are pay rises on their way back?” )

A second area in which employers could make savings is in the area of Bonus and Incentive payments, particularly for Executive staff, where historically such payments have been available to around 42 percent of the national sample, representing a significant portion of Total Remuneration.

In our twice-yearly pay survey we collect data on two aspects of Bonus/Incentive payments: the Maximum Payment available (i.e. in those Bonus/Incentive programs where a maximum is set), and the actual Bonus payment received in individual cases. By expressing both figures as a percentage of Total Remuneration we can make comparisons between what level of payment is available, and the level of payment actually made each year.

Perhaps not surprisingly, examination of the Maximum Bonus available in surveys between March 2019 (i.e. before the arrival Covid-19 in early 2020) and September 2021, showed very little variation in the level of payment available. This reflects the fact that bonus programs are typically included in employment agreements, and the amount available cannot be easily varied during the term of such contracts without some form of renegotiation.

Where the employer does have more discretion however, is in how much of the bonus available will be paid out, when organisation performance and individual contribution are considered. Careful examination of the chart above does reveal an apparently small drop in the level of Bonus paid in the years ending March 2021 and September 2021.

That chart is somewhat misleading however, hiding the true extent of this drop. By expressing Bonus Paid as a ratio of Maximum Bonus Available we can examine the true extent of the reduction, revealing that over the period from March 2020 to September 2021 (a period of 18 months) the aggregated reduction is just under 10.0 percent.

That reduction is significant. More importantly, it may represent a significant cost saving for the employer during a period in which revenue and funding may be seriously constrained by ongoing lockdowns, travel restrictions, border closures and supply chain difficulties. Given a need to reduce costs across the board for many employers, those savings cannot be ignored.

While there is no doubt that key executive staff in some organisations may not have experienced any reduction in income, as employers moved to retain key staff needed to manage the operations during challenging times, just as clearly many executives have seen reductions in total remuneration, and have actively contributed to needed cost savings to ensure business survival.  

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