Should employers pay bonuses despite economic uncertainty?

'If a business is in a good position to do so, bonuses can be a great way to reward hardworking employees and boost morale'

Should employers pay bonuses despite economic uncertainty?

Employers need to think carefully about paying windfalls to executive staff after the fall-out of Australia Post paying $28.45 million in bonuses last year, according to the Guardian.

Considering 362 non-executive staff were already earning more than $235,000 annually, it makes the average Australian question government-owned entities and other employers who only pay the basic wage and don’t reward everyone.

AusPost Group’s revenue dropped down to $4.69 billion for the six months up to December 31, 2022. Despite the staggering loss of revenue, Australia Post recorded a $23.6-million profit before tax. That’s 88% down from the year before, when the company raked in $199.8 million in profit, said the Guardian.

Australians have received nine interest rate rises in a row, with the Reserve Bank of Australia hinting there will be at least two more rate increases to come in April and May.

Late last year, Gina Rinehart’s company gave 10 lucky workers at Roy Hill a $100,000 bonus.

Why executives should be paid bonuses

Graham Wynn, founder of Superior People Recruitment, believes it is important to pay executives bonuses if they have met their targets and performed to the level required in their contract.

“Executives should be paid a bonus, as this will be written into their contracts,” he said. “The bonus should be paid based on the performance of the company, and their relevant key performance indicators.”

Despite tough economic times, in general, an individual company can still be performing well, so executives deserve their bonus, said Wynn.

“An executive bonus should reflect overall performance of the company based on many key factors, and if these have been met, then a bonus is still merited.”

This gesture will also send a positive message to shareholders that the company is travelling in the right direction, and the leadership is strong and favourable, he said.

“Shareholders, new and old, want to know the company they are investing in is sound, and if executives are achieving key performance indicators, then this is a positive outcome for current shareholders and potential new shareholders.”

Wynn believes companies will lose talent if they don’t pay bonuses resulting in a talent exodus and potentially affecting the revenue and profitability of the business.

“Should they not be paid their bonus, and assuming the key performance indicators have been reached, then there is the potential the executive will look elsewhere,” he said.

“Most executives will understand and ‘read the market’ so if they need to sacrifice their bonus due to market expectations, they will understand this. An executive will generally be looking at long term position and growth of a company, not just the current situation.”

Finding that balance

While employers will argue the need to keep quality staff, there needs to be a balance as to why executive staff are allowed to flourish in harsh economic times, according to one expert.

“When it comes to bonuses and tough economic times, employers must evaluate their situation carefully,” Todd Saunders, general manager at BIG Safety, said.

“Bonuses may not always be feasible, and it all comes down to the company’s financial state and workforce size; however, if a business is in a good position to do so, bonuses can be a great way to reward hardworking employees and boost morale.”

Saunders, however, believes it is imperative that all staff be involved in the bonus allocation in order to fairly recognise the contribution of everyone.

“While there’s no one-size-fits-all approach to how bonuses are allocated, employers should ensure that all staff receives a fair share of the bonus pool, regardless of seniority level or position,” he said. “To address potential scrutiny, companies should explain the rationale behind executive bonuses and be transparent about their bonus system.”

Rather than distributing bonuses solely to senior staff, employers should come up with ways to distribute profits more equitably, he said.

“Some options include rewarding employees with additional vacation days or flexible hours, profit-sharing systems where each employee receives the same bonus regardless of position, and performance-based rewards for individuals who have gone above and beyond their duties.”

While Saunders is not opposed to government employees receiving bonuses, he concedes the optics aren’t good and that any business needs to think carefully about the perception it is giving to the market.

“Bonuses in government-run institutions are subjected to greater scrutiny as these businesses are often taxpayer-funded,” he said. “In light of this, any bonus system must be well-designed and justifiable to avoid public backlash. The government should also consider alternatives to bonuses, such as higher wages, additional benefits, and better working conditions to reward staff.”

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