Bonuses back on the table as skills shortages push up salaries: Survey

Bonuses are back in vogue, according to a new report released by research firm Hay Group, which found that most Australian workers should expect a pay rise this year and that 75% of workers are set to receive some form of bonus, up from 66% in 2010.

But as the buying power is still in the hands of employees as skills shortages continue, the report recommends employers take a long-term approach to rewards, creating two or three year plans, and focus on rewarding key players in your team.

Hay Group senior consultant Steven Paola says bonuses are back after having disappeared during the GFC, as employers start focusing on how they can ensure their key talent remains within the company.

“Performance is a lot more measurable when there is a payment involved, and they do that to drive performance,” he says. “This is a key way employers are really focused on getting that productivity out of their workers.”

The report shows that in 2009-10, there were basically no bonuses paid, and those that were paid were extremely limited. But in 2011, bonus payments have increased with a 5.6% jump in the total annual reward given out for all organisations, with the financial industry rising the most at 6.5%.

“These bonuses are back, and they’re back at above GFC levels. It’s a sign of how quickly the market has actually rebounded, and it shows the economy is actually performing well for a lot of sectors.”

Paola says despite pessimism about Christmas and the upcoming year, businesses are able to differentiate between troubles in the European economy, and the actual current performance of the Australian economy – hence the rise in bonuses.

“I think there is a lot of optimism in the market right now, but a lot of pessimism about other markets and their economies. I think that’s where the cautious attitude is coming from, not necessarily anything right now that’s happening in Australia.”

Across the board, salaries are increasing, with adjustments of 4.25% in fixed annual reward structures across all industries in 2011-12, with 6.25% for the resources industries, as skills shortages take hold across a number of sectors.

As a result, employers are being told to think about salary incentives over the long-term, over a few years, instead of just 12 months, and “focus on rewarding your outstanding performers in key roles”.

“Emphasise pay for performance and ensure there is a clear link between team and individual accountabilities and company performance,” the report warns, along with ensuring you communicate total rewards regularly.

Paola says more businesses are considering bonuses as they attempt to hold on to talent for longer.

“There is a much bigger emphasis on bonuses in an employee package now, and in that type of system there is more for the employee to achieve.”

Salaries have increased in the resources and construction industries, up by 23.8% and 13.5% respectively, while pharmaceuticals, education and agriculture have seen salaries fall 10.5%, 10.3% and 9.5% respectively.

The report notes there is an increasing gap between construction and mining, and other sectors, noting a number of planned expansions in 2011-12.

“Rebuilding in Queensland and skill shortages localised to these industries will only further strengthen pay premiums. This is likely to wedge an even bigger gap between mining related industries and the rest of the market.”

This wedge is also being driven across geographies, with jobs in regional Western Australia commanding 11.7% larger packages and 13.54% larger salaries compared to the mean, while jobs in remote Queensland are earning a premium of 4.9%, the report says.

“The salary movements across the Australian market over the past 12 months are telling us an interesting story. As the two-speed economy strengthened, driven by a booming resources sector and subdued non-commodity sector, Australian pay movements mirrored the emerging trend,” Paola says.