Bonusand VariablePay: Lessons fromthe U.K.

Abstract

The universal benefits of variable pay plans trumpeted by North American compensation experts have been well publicized in the United Kingdom and Europe, helping to stimulate extensive growth in their application. But how effective are these schemes in a different cultural environment? Critics describe them as a dangerous and demotivating, if initially seductive, import. This article documents growth in the incidence of plans and demonstrates that, as in North America, they have the potential to reinforce achievement of business goals and results and enhance employee motivation and engagement. The plans, however, need to be tailored to the characteristics and culture of each country and organization, and three universally essential requirements need to be fulfilled. First, plans need to be introduced as part of a total rewards strategy aligned with the organization’s goals. Second, the plans must fit with the structural features and dynamics of the organization. Finally, plans have to be developed and operated in conjunction with a comprehensive employee involvement and communications approach.