Why bonus time is a tricky business for employers

Many employees will be more interested in relative nature of their payment and draw conclusions not intended by their bosses

PUBLISHED : Wednesday, 22 January, 2014, 12:19am
UPDATED : Wednesday, 22 January, 2014, 2:00am

The period running up to the Lunar New Year can be very tricky for employers and employees, probably more for the former, because this is when decisions have to be made about bonuses.

Some companies are in bad shape and cannot provide any bonus, but this is rare. Others offer a fixed or percentage sum to all employees; this has the merit of simplicity and the virtue of equality but does not reward those who deserve more.

Most Hong Kong companies use bonus payments to reward diligence and long service, while implicitly sending signals to those with lower payments that their contribution has been judged in a manner that alternative employment could be worth considering.

Bonuses are a fraught subject because they are a matter of comparison in ways that are more personal. After all, it is quite possible for two employees on the same pay scale to receive very different bonus payments.

Judgments need to be made and subjectivity cannot be avoided

Asian companies differ from their Western counterparts because bonus payments are right across the board.

In the West, bonus schemes are largely confined to senior management and, as we have seen, became a matter of controversy, notably in banks. Public companies also faced criticism from shareholders who believed their money was being used to reward directors who did not deserve it.

Much of the bonus criticism is quite understandable, especially when it relates to showering large sums of cash on traders and bank directors working in financial institutions that survived only after being bailed out from the public purse.

Meanwhile, the pressure on public companies in the West to justify bonus payments has intensified as a result of shareholder activism. The result has been the growth of independent remuneration committees that determine bonuses. Listed companies have been compelled to offer a lot more explanation why they make these payments.

This sort of pressure is notably lacking in Hong Kong, partly because shareholder activism is minimal but also because of a culture that tends to allow majority shareholders the benefit of the doubt and accept that those with money should get even richer. Anyway, most locally listed public companies reward their directors with dividend payments as opposed to bonuses, but that's another story.

Back on the shop floor, employees wait anxiously for the pre-New Year pay slip to see what bonus they have been given. Some companies naively believe confidentiality attaches itself to bonus payments, but despite their efforts to avoid public knowledge of who gets what, word seems to seep out. Where factual information is scarce, rumour takes over. The net result is these payments become a major talking point.

There is no precise science in bonus awards and so employers take a view on intangibles such as attitude, productivity, loyalty and results. Only those who have never been responsible for implementing bonus payments can smugly say that some of these intangibles, such as productivity, are measurable. The reality is that in Hong Kong's predominantly service economy productivity is a combination of many factors that defy precise measurement.

Judgments need to be made and subjectivity cannot be avoided. Thus, a tricky business becomes that much more tricky.

At the higher end of the bonus tree, it is usually easier to make decisions because exceptional employees are not difficult to identify. When it comes to the mid-level of bonus giving, careful lines need to be drawn between encouragement and discouragement. At the lower end, there is the problem of deciding whether to pitch bonuses at levels that encourage employees to leave, a problem in a tight labour market, or to offer a little more for the simple purpose of avoiding staff disruption.

The only certainty is that some employees will go into the new year in a rather unhappy state of mind, some will be pleasantly surprised and others will merely shrug and believe they got what they expected.

Lurking behind these responses will be an acute awareness of how others have been treated, and it is likely that instead of focusing on what they deserve, many employees will be more interested in the relative nature of their payment and draw conclusions not intended by those making bonus decisions.

If nothing else, this confirms the old adage that managing companies is mainly about managing people. And, as we all know, people can be very difficult.

Stephen Vines runs companies in the food sector and moonlights as a journalist and broadcaster