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Matthias Ruziwa H R Issues
During recession, use of bonuses becomes a highly contentious issue with the whole nature and mode of operation of bonuses called into question.

Remuneration practices are deemed to be a significant contributory factor to the market crisis. Essentially, many reward specialists believe that during difficult economic times, there is need for a link between high levels of performance and the payment of bonuses and incentives.

Obviously there are problems that may arise if there is a lack of rigour in the application of this principle. In this article, the writer will make an attempt to explain the meaning of bonuses and incentives and analyse whether or not bonuses are relevant during economic downturn.

Bonuses and cash incentives are a form of variable pay based on the use of cash lump-sum payments linked to individual, collective or organisational performance.

They are not consolidated into base pay. The approaches to payment of bonuses differ from one organisation to another. Incentives and bonuses are two different things but more often, the two terms are used interchangeably by the media.

The key distinction is that incentives aim to influence future employee behaviour or performance, usually through the use of targets: if a specific target is met, the employee will receive a mandatory cash payment whilst on the other hand; bonuses encompass a wider range of purposes and can be discretionary or non-discretionary.

Like incentives, they may be used in an attempt to influence employee performance or behaviour to meet pre-set objectives — but they could also be used on a more ad hoc or retrospective basis to reward past achievements.

According to reward management gurus, incorporation of bonus and incentive plans into reward packages has been driven in part by the influence of the ‘new pay’ philosophy — which advocates that ‘guaranteed’ basic pay should comprise a small element of the overall reward package — and shift towards strategic reward linking employee performance and pay to the wider business strategy.

One of the main factors affecting business in Zimbabwe today is labour costs that are not linked to organisational strategy and productivity.

“Along with capital, labour is a basic factor of production and its costs influence the costs of all goods and services produced in the economy in the production of the particular intensity with which the production process utilises labour, (ZEPARU, 2014)”.

The notion of linking all rewards to employees’ contributions rather than simple performance help the organisation send out a message to employees that its higher performing employees who should get more money.

The main benefits of having bonuses and incentives on the organisation’s pay structure includes, on-going motivation as bonuses have to be re-earned, lack of impact on certain employer on-costs that are linked to basic salary levels, such as overtime rates, capacity for maintaining market pay competitiveness without necessarily inflating the annual payroll and the ability to reduce or even halt payments during economic downturns.

On the contrary, employees may be disadvantaged as bonus and incentive payments must be re-earned and may not count towards pensionable pay and it’s a hard fact that payments may be unpredictable or lower than expected if targets cannot be met or during economic downturns.

Cash-based bonus or incentive plans are far more common in the private sector than in the public. If they are to impact on employee behaviour or performance, bonus or incentive payments need to be ‘worth having’, that is, set at a sufficiently high level to have an effect.

Mazrket practice may also need to be taken into account. An important factor in the calculation of any bonus is that it is kept simple.

Ideally, employees in the plan should be able to measure progress against targets and carry out the calculation themselves so that they know how they are progressing and what payment level might be achieved. The formula used by most employers to pay bonuses or cash incentives is either a salary percentage or just a flat rate payment.

Most organisations in Zimbabwe are currently fretting from the effects of economic hardships. There is need to improve productivity and when carefully designed and tailored to align with an organisation’s vision, mission and objectives, bonuses and cash incentives can help to create and sustain high performing workplaces.

To be effective, bonus and incentive plans need to operate as part of an integrated reward strategy closely linked to business objectives including long-term goals.

Organisations therefore need to effectively define performance and put in place a framework under which performance will be managed which requires a combination of top-down and bottom-up approaches to ensure that there is common understanding and a shared vision across the entire business organisation.

Disclaimer: Opinions expressed herein are solely those of the author

Matthias Ruziwa is an experienced and progressing Strategic Human Resource Practitioner based in the Midlands Province, City of Kwekwe.

You can contact Matthias at the following email address: [email protected]/whatsapp 0773 470 368