Staff pay gap: Beating the Fat Cat Tuesday blues is about making bonuses work for everyone

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It’s not just the size of the executive’s pay packet that’s discouraging (Source: Getty)

This week has seen a repeat of the now familiar outcry over bosses’ bonuses. Top bosses had earned more by last Tuesday than the average worker will earn in a year, in a phenomenon being termed “Fat Cat Tuesday”.

And unsurprisingly, the size of chief executives’ bonuses is demotivational for UK employees, as recent CIPD research showed. Over seven in ten workers believe that executive pay in the UK is too high, or far too high. Crucially, six in ten employees also say that this high level of pay demotivates them.

But it’s not just the size of the executive’s pay packet that’s discouraging – it’s the gap between the total salary of the boss versus the workers.

This is particularly true when it comes to bonuses. Sizeable rewards for chief executives are especially demotivational for workers when there isn’t a bonus scheme in place for those at lower levels of the organisation, as is the case in many businesses in the UK.

Despite over a quarter of UK employees stating a financial bonus would be their main motivator, 45 per cent of people are on a fixed salary with no potential for a bonus. Research and experience indicates that financial incentives can be a powerful tool for encouraging workers – but they aren’t being utilised effectively.

Read more: When does your pay overtake the average UK worker?

One in four of our respondents claimed their pay was not impacted in any way by their performance.

Even in companies with bonus schemes, often arbitrary windfalls are assigned to staff based on overall business performance without adequate visibility. This is a huge missed opportunity, as connecting performance to pay is a clear means of improving productivity - a key driver in fueling the needed growth in the UK economy.

Smart incentive schemes can link rewards to individual achievements and even behaviours throughout the year, including everything from closing large deals to inputting data accurately into business applications, for example. This way, managers can tie bonuses to the business objectives – and motivate teams to drive productivity.

Employees should be aware of the actions and behaviour that will offer them the opportunity to earn commission. Real time visibility to compensation motivates employees on a daily basis, encouraging them to be as productive as possible. And ultimately, this visibility avoids shadow accounting by staff and potential end of year salary surprises. Before you think that this would simply cause a mountain of admin, there are now smart business applications that can do all this for you.

To really engage staff, levels of pay must reflect performance, whatever your position. If there is a clear and visible link between achievements and compensation, then pay can be a great incentive.

And if employees feel that both they and their bosses are being fairly rewarded, then the high pay packet at the top won’t be so depressing. It’s not that companies need to throw money at staff to improve motivation; smart bonus schemes encourage great performances - and productive businesses.

The Fat Cat Tuesday blues don’t have to be a fact of life. Businesses need to focus on making bonuses work for everyone.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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