Annual Bonus Funding Under 90% For US Employers

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Although the U.S. labor market is tightening up, apparently employers are still not willing to pay employees the maximum bonuses allowed by company plans. Although the reasons are not clear, according to a recent report from consulting and research firm Towers Watson, employers are only funding bonus pools at 89% on average in 2015, down from 93% in 2014.

Details on Towers Watson US employers survey

The 2015 TW US employers survey highlights that since 2005, U.S. firms have fully funded their bonus pools on only two occasions.

The report also determined that 30% of employers plan to give bonuses to employees who do not meet performance expectations, which is the lowest possible performance ranking. While a large number of firms give the same payout to every employee regardless of their individual performance, other employers that pay bonuses to employees with the lowest rating pay them around 65% of their bonus target payout on average. On the other hand, the survey data shows that employees who exceed performance expectations will on average earn bonuses close to 19% higher than the target amount.

The TW survey also found the number of US employers with problems holding onto critical-skill employees has increased notably two years. In fact, over half of respondents (52%) are reporting difficulties in keeping critical-skill employees, compared with 41% reporting this as a problem in 2013.

Related to this, a solid 66% of employers reported having difficulties attracting critical-skill employees. This figure has stabilized over the last couple of years after rising steadily since the end of the recession. The report authors note this trend is turning around as talent mobility is increasing.

More than 53% of survey respondents said hiring activity is up relative to last year, while around 40% noted that turnover is increasing.

Statement from Towers Watson

“Employers are continuing to take a conservative approach to funding their bonus pools,” explained Laura Sejen, a managing director at Towers Watson, who also points out that funding for incentive pools is almost always related to a firm’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.”

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