Fat cat bonuses always attract attention, but it was a massive payout to the retail rank and file that made the most jaw-dropping headlines last week.
Thanks to a near tenfold increase in the share price of discount retailer Sports Direct, employees who signed up for an incentive scheme hatched five years ago - in which they were handed shares worth 25% of their salaries in 2009 - are in line to receive an average payout of £75,000 based on a £20,000 salary. With employees now contractually free to sell their shares, it will be interesting to see what retention rates look like.
While the sums being handed out in the case of Sports Direct dwarf the usual bonuses awarded to employees, they are keenly awaited. John Lewis Partnership’s staff - including those at Waitrose - received a much-publicised bonus worth 17% of their annual salary across all the pay bands. From a total pot of £210m an average of £2,470 per employee was paid out, up 12% on the year before.
The record performance-related bonus pot received by Sainsbury’s staff was worth £90m - equating to £671 per person, compared with £476 in 2012, a 40% hike.
Tesco staff, on the other hand, fared less well this year. Their bonus pot halved from £110m in 2012 to £55m in 2013, a fall from £393 to £200 in the average.
Tesco staff are not alone in feeling the pinch. The Co-operative Group shares a bonus pot equally between its staff members working over 30 hours per week, and in 2013 it fell to £164 from £300 in 2012.
Morrisons’ staff saw a smaller fall, down on average from £433 in 2012 to £403 in 2013.
However, when it comes to keeping staff happy, bonuses aren’t the only option, and share schemes like the one introduced by Sports Direct are becoming more attractive.
Share-save schemes offer employees every investor’s dream - a risk-free bet on the company’s share price - and employees are taking part in increasing numbers. Over several years of paying in each month, if it appreciates you buy the shares at a discounted rate and sell at market price. If it depreciates you get your money back plus a bonus, and pay neither income tax nor national insurance on the difference.
Morrisons has been going to some lengths to encourage staff to take up its share offer. In 2012 for the first time employees could sign up via text message, with 25% choosing to do so and uptake increasing to 18% of its staff compared with 14% in 2010. The average monthly amount saved also jumped, from £56 in 2010 to £66 in 2012.
M&S has also seen a big increase in participation in its share scheme, with participation rising 11% since 2009 and the amount saved on a monthly basis up 12% in the same period. “It offers a structured way to save but it’s also a great employee engagement tool too - encouraging a real interest in the performance of the business and allowing employees to share in success,” says a spokeswoman for M&S.
Asda also made headlines recently with a record £61.7m windfall for 19,040 staff after the maturation of one such share ownership scheme.
But it also operates a bonus scheme that, unlike other retailers, is highly localised and store-specific. Staff can earn 20%-120% of a pre-set bonus based on their store or depot’s performance against targets. In 2012 year every store and depot qualified for a minimum 20% payout while 299 stores and 13 depots hit targets between 100% and 120% - qualifying them for the so-called super-bonus threshold, worth £437 in the pocket for a full-time store assistant. That’s more than twice the average received by Tesco workers this year, despite Asda having its own share of performance issues in the UK.
“Annual bonuses help to incentivise staff and let them share in the success of an organisation through additional pay without getting wrapped up with the fixed costs associated with a normal pay rise,” says Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development. “If employees are incentivised to stay it can reduce recruitment and training costs, but benefits to the employees tend to depend on the performance of their company’s share price.”
Shore Capital analyst Clive Black says the benefits are clear. “Rewarding staff through bonuses and share ownership schemes can create virtuous cycles that keep staff engaged.”
If they’re not heading off into the sun to spend their share payouts, that is.
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