Linking Bonus and Salary to Performance Planning / Appraisal / Review Processes

[Jodiebee]

Good Afternoon HR Community

I am looking for some different opinions on a topic and decision that needs to be made that is currently quite contentious in our HR Team.

Without going into the specific reasons why, some of our HR (and most of our leadership) team are pro the direct linkage of performance reviews to salary and bonus and some of our team are not,

I wonder what our wider HR community thinks?

We are exploring a very new and contemporary performance process and this is a discussion piece.
and would be very keen to hear your views / opinions / arguments on this topic.

Cheers
JB

[Renda]

Equity is important to keep in mind. If linked it can't be seen to advance/benefit some more than others depending on seniority in org. Depends on position KPI's/position. For e.g. a sales mgr with quantitative KPI's may be disadvantaged to a Line Manager with more qualitative KPI's if targets more difficult to achieve due to factors out of direct control-such as economy.
Linkage works best if $$ rewards kept to minimum and combined with intrinsic rewards, which is more common in Australia

[Qld IR Consultant]

Without knowing specifics of the roles I personally think that linking performance to bonuses is perfectly fine, but linking them to the ordinary salary is a recipe for a confrontation at some stage. I have implemented performance management and bonus schemes in a number of clients, the trick is to find the balance so you don't divide your workforce. It is a very good tool to promote increased productivity, it just needs to be managed correctly or it will fall over very easily and be more trouble than its worth.

[Tiger]

Following on from Qld IR Consultant's comment, whatever bonus scheme you have needs to be transparent. These are often linked to the Company's overall performance and can be made up of several components, ie company, divisional/dept and individual which means how a team operates can effect the bonus of individuals in that team. Also, if a company doesn't do well in one year, they may well be no bonuses given. Or, there are some companies who decide to just give all employees the same bonus eg 2 or 4 weeks' pay at a certain time each year.

I've seen bonuses given to some to appease then (squeaky wheel syndrome) or to make up for a base salary that may be out of whack. Fixing up any salary discrepancy is a far better option.

Personally, I am not a believer in linking bonuses to direct individual performance but a lot of orgs do this. It can cause problems and your employees will know because they all compare notes when it comes to money. The issue of objectivity can't be ignored. One manager may favor someone even though that person's performance is not great - this can lead to resentment.
Finally, performance needs to be reviewed formally more than once a year and it then becomes about the timing of those reviews and that of your annual salary review and bonus payments. So in setting up your annual HR schedule, it would be logical to start with fact that bonuses would likely be paid around September or so when all the financial year end results are in and audited - or if your company is not Australian, you may have another financial year end.
As you suggest, there are many views on this topic and if this is something new for you, I'd recommend seeking advice from a Mercer type consultant - they generally know what others are doing and you can check what others in your industry type are doing.
Tiger

[Jodiebee]

As always I truly value your opinions and views and yet again they will make a significant contribution to our already very robust discussions... just for the record I agree with you all bonuses - yes .. salary - no !! Have a great weekend guys!