0203 026 3870
Newsom Consulting
Delivering Leadership Talent
Newsom ConsultingNewsom Consulting
  • Sectors
    • Rail
    • Aviation
    • Highways
    • Power & Utilities
    • Buildings
    • Defence
    • Major Projects
    • Transport Operators
    • International
  • Our Services
    • Executive Search
    • Talent Mapping
    • Leadership Assessment
    • Outplacement
  • Opportunities
  • Testimonials
  • Insights
    • Blogs
    • Reports & Guides
  • About Us
    • Our Team
    • Diversity & Inclusion
  • Contact Us
  • Sectors
    • Rail
    • Aviation
    • Highways
    • Power & Utilities
    • Buildings
    • Defence
    • Major Projects
    • Transport Operators
    • International
  • Our Services
    • Executive Search
    • Talent Mapping
    • Leadership Assessment
    • Outplacement
  • Opportunities
  • Testimonials
  • Insights
    • Blogs
    • Reports & Guides
  • About Us
    • Our Team
    • Diversity & Inclusion
  • Contact Us

Is your bonus structure working? Why it’s important to get this right

Bonus culture has been under the spotlight in the infrastructure sector in recent weeks, with two separate reports investigating the rewards that were paid to senior figures at collapsed Carillion and troubled Interserve.

Interserve chairman Glyn Barker said in the firm’s 2017 annual report that financial performance had been “extremely poor”. Yet the same report goes on to say that Debbie White, who joined the firm as chief executive in September last year, was rewarded with a bonus of £270,089 for four months work, 125% pro rata, on a base salary of £216,667 for that period. The firm’s remuneration committee said it was “comfortable” with the sum “in light of the improvement in the underlying financial position of the company”.

Shortly afterwards a report published by two government select committees detailed the £245,000 bonus received by former Carillion chief executive Richard Howson in 2016 “despite meeting none of his financial performance targets”.

Many people who work hard for the good of their employer without receiving anything like these kind of rewards will understandably question the bonus culture in the industry.

It must be remembered that leadership jobs can make or break a major company and often come with long hours, time away from family, high pressure, lots of stress and the risk of public shaming if things go wrong. Linking an element of pay to performance is a key way to attract, retain, motivate and direct the best, most driven people to these critical jobs.

So bonuses are not intrinsically bad, but they do need to be carefully considered and used shrewdly. Here are the main factors we advise our clients to consider when they ask our advice on setting variable pay.

 

1. Individual v collective rewards

The first thing to think about is how tightly you want to link a person’s reward to their individual performance. Some directors earn bonuses solely on the results of the small team they manage, while at least one employee-owned infrastructure consultancy pays out a uniform amount to everyone on a certain pay grade worldwide based on global outcomes.

An advantage of linking all employees’ bonuses to group performance is that they will be motivated to cross sell services for other countries or practices to clients and do what is best for the business. On the other hand do you risk making them less focused on the performance of their business unit, relying on other areas to dig them out of trouble if they miss target?

To strike a balance, many infrastructure firms use multi-layered bonus schemes. As an example, you could make a quarter of variable pay down to personal performance, a quarter related to the individual’s business unit, a quarter to their country’s results and a quarter based on company-wide figures. Understand what you want to achieve and come up with your own breakdown.

 

2. Subjective v tangible objectives

The measures you use for bonus calculations become professional targets for the individuals within your business.

The concept of SMART objectives has been around since the 1980s and is still widely used in modern business leadership training. The theory demands that individuals should be set targets that are specific, measurable, achievable, relevant and time-bound. Basically, you want bonus measures to be as tangible as possible.

Make it really clear and fair what you want someone to do to earn extra pay – and then don’t be surprised when they act accordingly. If you are rewarding a Bid Director solely for winning a contract, expect to see them focus purely on that, possibly at the expense of winning contracts at profitable margins.

There is an argument for some subjective assessment of bonus payment to factor in exceptional circumstances that could significantly impact the achievement of targets, either positively or negatively. This would have helped the case of the housebuilder Persimmon this year when £500m in bonuses were paid to the 140 senior staff after the ‘Help to Buy’ subsidy sent profits soaring way beyond predictions.

But this case shows the need for clarity and measurable targets when setting bonuses. I’ve known people get into huge rows over bonus payments when the rules were too subjective; companies have lost good people over this. Keep bonus objectives tight and for executive roles consider the time period over which performance is measured.

 

3. Flat v staggered payment structures

Huge bonus payments for senior directors often come about as a result of the double whammy of being able to earn a higher proportion of a higher salary compared to lower-ranked managers.

So a chief executive on £500,000 might be able to earn £500,000 in bonuses, while a colleague on £50,000 might earn a maximum bonus of £3,000. In other companies, bonus levels might be shared out equally between 10-40%.

Decide which is right for the culture you want to promote in your organisation. Do you want a collective, ‘we’re all in this together’ vibe or more of an American Dream where employees are heavily incentivised on their individual performance?

My experience working with clients, contractors and consultants to fill senior roles in this industry is that giving high rewards linked to measured, targeted objectives is a key factor in getting the right people doing the right thing for your organisation. However, mindlessly throwing money at people regardless of individual and organisational performance is a recipe for disaster on all sorts of levels.

Put some time and thought into the best way to shape your bonus structure to get the kind of results you want. And remember we are here to advise if required, so feel free to get in touch HERE.

By Jim Newsom22nd May 2018
Jim Newsom

Author: Jim Newsom

Jim Newsom leads our work in construction and infrastructure having worked in executive search since 1998, recruiting for both public and private sector companies in infrastructure, transport, engineering and construction. Prior to forming Newsom Consulting, Jim spent 11 years working for the one of the UK’s largest independently owned executive recruiters and then two years at a boutique search firm. Jim is a graduate in civil engineering from Liverpool University.

Post navigation

PreviousPrevious post:Recruiters and hiring managers –The great divideNextNext post:Movers and Shakers in Transport & Infrastructure- The headlines from May

Related posts

Movers and Shakers in Transport & Infrastructure – The Headlines from February 2021
2nd March 2021
Movers and Shakers in Transport & Infrastructure – The Headlines from January 2021
1st February 2021
The Bid Recruitment Dilemma – How and Who Should You Be Recruiting?
25th January 2021
Mergers & Acquisitions in Transport, Infrastructure & Construction – The 2020 Roundup
18th January 2021
Movers and Shakers in Transport & Infrastructure – The Headlines from December 2020
11th January 2021
UK Major Projects Pipeline Update
7th December 2020

To recieve our weekly blogs please fill in your details below:

Recent Posts
  • Movers and Shakers in Transport & Infrastructure – The Headlines from February 2021
    2nd March 2021
  • Safety Culture – Is Safety Behaviour Slipping Since Covid?
    22nd February 2021
  • It’s 2021 – How Can We Improve Gender Diversity in Construction and Infrastructure?
    15th February 2021
Testimonials

Over the last few years CAF Rolling Stock UK has worked closely with Jim and Richard of Newsom Consulting to recruit several leadership roles across the business. We have found Newsom to be effective in providing high calibre candidates. We would recommend Newsom for recruiting key leadership roles.

Chief Operating Officer, CAF Rolling Stock UK

Since taking over as the CEO of Crossrail I have put a lot of effort into establishing the right leadership team to complete the project. Newsom Consulting have been a great partner in this work. Together we have worked to assemble a great new team  with the right energy and capability for one of the worlds most complex projects.

Jim and team are a real pleasure to work with; responsive and sensitive to our unique circumstances.

CEO, Crossrail

Heathrow have partnered with Newsom Consulting to recruit several key leadership roles for our Expansion team. On each search they have been successful in providing an excellent shortlist from which we have appointed a high-calibre candidate. Jim has worked with Heathrow for a number of years and has developed a good understanding of our business, and we have recently appointed Newsom Consulting as an executive search partner for the Expansion programme.

Expansion Programme Director, Heathrow Airport
Newsom Consulting
  • Contact Us
  • Privacy Policy
Footer Menu

We are using cookies to give you the best experience on our website.

You can find out more about which cookies we are using or switch them off in settings.

Newsom Consulting
Powered by  GDPR Cookie Compliance
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.

Strictly Necessary Cookies

Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.

If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.