When the last financial year total bonus payments reached £42.4bn, representing an increase of 2.7% on the previous period. Overall, the total bonus payments measured just £100m less than in the financial year 2007-2008.
James Sproule, chief economist at the Institute of Directors (IoD), welcomed the news that bonuses were rising, saying it was an indication of increased business confidence. “Bonuses are a fundamental feature of a flexible labour market and make up a key component of the remuneration mix,” Sproule said. They allow businesses to reward staff for their achievements over a set period of time and are often directly linked to an individual’s or the company’s performance.
Today’s figures, which show both bonuses and base salaries continue to rise is good news, and another sign of improved corporate performance and strong business confidence.
But the world of bonuses has not returned to business as usual. Bonus levels were driven across those sectors of the UK economy that exist outside of financial and insurance services. Where finance and insurance industries saw bonuses drop 9.6% this year, down to £13.6bn, the rest of the UK economy saw bonuses rise by 9.7%, up to £28.8bn. However, the figures have been criticised by Dave Way, the managing director of financial recruiter Marks Sattin, who said the ONS findings were “murky at best”.
Way said, “Our own research shows the number of roles for financial and accountancy professionals in financial services grew 87% in the last year but the number of potential candidates increased just 15%. “A key driver behind this growth is the expanding FinTech sector, which last year was worth £20bn in revenue to the UK economy. Growing firms can no longer assume the best and the brightest are going to turn up on their doorsteps and must craft desirable remuneration packages to attract them.
Figures suggest that bonuses in the finance and insurance sectors are instead being commuted to general salary packages. Before the crash, bonuses contributed 34% of total remuneration in these sectors, compared to just 20% now. Contrastingly, the rest of the economy has seen bonuses contribute a consistent 4% of pay-packages.
“In the financial and insurance industries, the fact that bonuses now make up a significantly smaller chunk of take-home pay suggests steps have been taken since the financial crisis to rein in excess,” Sproule explained. Nevertheless, we must caution against moving too far in the opposite direction. While bonuses in the finance sector have fallen by around 10%, wages are growing at one of the fastest rates of any industry.
“This could mean firms are just shifting pay towards base salaries, rather than making sure bonuses reward employees who have delivered value for the company and hit stretching and long-term performance targets.”