Pay-for-Performance Trumps Bonuses, Survey Shows

A new survey from HR services company Hewitt Associates shows that 66% of companies will not award holiday bonuses this year, instead favoring performance-based bonuses.

Nearly 80% of organizations currently offer this type of variable pay program, according to Hewitt’s 2006 holiday study of more than 300 organizations

The survey suggests that there is a definite “variable payoff” since variable pay can help make up where base salary increases and holiday bonuses fall short, and for those employees who meet or exceed goals, the bonus payout could be more than a traditional holiday bonus.

“The majority of companies have realized that only through performance-based awards can an organization effectively motivate and reward employees for helping achieve their goals,” Hewitt consultant Ken Abosch said in a news release.

Abosch suggests that variable pay plans, as opposed to holiday bonuses, clearly connect employees to company performance.

The survey notes that in 2006, actual company spending on variable pay as a percentage of payroll is 11.2%. Spending on variable pay in 2007 is projected to remain at 11%.

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The Bonus Breakdown

The survey reveals that 52% of companies have never offered a holiday bonus. Reasons include 45% linking rewards to performance, 36% citing cost, and 30% noting that they never considered such a program.

For the 34% of companies that are offering a bonus this year, 39% will award cash, 37% will provide retailer gift certificates, and 27% will give employees a gift of food (i.e, turkey or ham).

Meanwhile, the remaining 14% of companies surveyed have recently discontinued their bonus programs. Sixty-one percent cite cost, 35% say employees did not value it, 33% cite entitlement issues, and 21% say the development of pay-for-performance programs.

Elaine Rigoli has nearly 15 years of experience managing content and community for various B2B and consumer websites. Elaine has written thousands of business and technology articles and has been quoted in The Wall Street Journal and eWeek, among other publications.

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