Bonus schemes fail to meet corporate governance targets

The survey of 58 UK companies showed that many had failed to achieve the balance between base pay and bonus that they had planned. Companies were paying up to 35% more in base pay than intended. Mark Edlesten, a European partner with Mercer, said: &quotWhat we are seeing is a failure to control base pay and bonus mix, resulting in low bonus payouts and an upward drift of base pay.

&quotThe overall result is to blur the high-performance message that many leading companies seek to emphasise.&quot Meanwhile, the upward drift in base pay was storing up problems for the future, he said.

In July 1999 Stephen Byers, the Secretary of State for Trade and Industry, set out the government's line on bonuses that they were acceptable provided they reflected genuine improvements in performance. This line has been taken to represent best practice in corporate governance, applicable primarily to the executives at the top of an organisation but also applicable to the staff as a whole. However, Mercer's research shows that implementing best practice is proving more difficult than companies thought.

Edlesten said: &quotBonus schemes often underperform where targets are poorly designed and communicated, or become outdated. Performance-driven companies need efficient communication networks and flexible measurement systemes to ensure targets are continually reviewed.&quot