For the fifth year in a row, bonus payouts will fall short of what employers had budgeted for, according to a Towers Watson survey of 170 large and midsize U.S. employers. The 2015 projected bonus funding for companies is, on average, 89% of the performance target. That's down from 93% last year.
But here's the thing: Towers Watson says "three in 10 employers still plan to give bonuses to workers who failed to meet performance expectations." That is the highest percentage since 2007 and a jump from last year's 28%.
Putting aside companies that give all workers the same bonus, companies that differentiate give their lowest performers about 65% of the target payout, on average. Employees who exceed performance expectations get bonuses about 19% above target.
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Just 3% of employees downright failed to meet performance expectations, according to Towers Watson. But a solid 8% only partly met expectations, and a hefty 56% met them but failed to exceed (25%) or far exceed (8%) expectations. That's a lot of bonus dollars for disappointing and middling employees.
Is it a remnant of corporate largesse? A fear of losing skilled workers to the competition? A bit of managerial laziness?
Most programs are designed so that if an employee doesn't meet performance goals, he or she gets either a smaller bonus or no bonus, says Towers Watson's director of rewards consulting, Sandra McLellan. But over time, she says, some companies have simply "lost clarity about the purpose of their [bonus] programs."
