News focus: Do you deserve a bonus?

12 February 2010

16 February 2010 | Jake Kanter

So far procurement has been largely left out of the bonus culture, but the day is approaching where more will be incentivised to hit targets, writes Jake Kanter

If you ask my mother and father about my pay, they’d say it was too high,” admits RBS chief executive Stephen Hester, in reference to his bonus package.

His words to a committee of MPs last month underline much of the stigma attached to bankers’ bonuses since their actions sent the global economy into meltdown.

Buyers are unlikely to suffer similar paternal scorn over their financial rewards. In fact, many are lucky to receive incentives at all, judging by the results of the latest SM poll.

Nearly three-quarters of purchasers say they do not get a bonus for hitting savings targets, a policy which is proving unpopular with some.

“I do not get a bonus for hitting savings targets, but I believe I should,” says one buyer anonymously. “Salespeople always get a bonus for hitting their targets and procurement professionals often seem to be forgotten.”

And the situation is no different for buyers in financial services, who still have to fight for their dividends. “In an industry with a bonus culture, procurement is not as recognised as revenue-generating when it comes to bonuses,” says Jamie Holman, commodity manager for Bank of America Merrill Lynch.

Others were more accepting of their low reward packages, with many pointing out that cost-cutting is part of the day job. All public sector purchasers polled by SM admit that they never receive bonuses.

This is for a good reason, as Gareth Elwin, director at recruitment firm Morgan Law, explains: “It is a very delicate matter when it comes to the public sector. It would be difficult to justify [bonuses] with current spending pressures.”

Many purchasers say that awarding incentives solely for meeting savings target could fuel risk taking and sour supplier relationships.

“It’s a bit like the bankers’ situation, where they will take the risk to hit the target and release the bonus,” adds Philip Dews, contracts manager at facilities management firm Interserve.

“It is in everyone’s interest to save money, but sometimes you can get a better result by going for a smaller reduction upfront and taking the savings over a longer period of time.”

Instead purchasers and recruiters report that rewards are typically based on a number of targets. It echoes the findings of an SM100 poll nearly two years ago, which revealed 45 per cent of buyers receive bonuses for a combination of reasons (News, 8 May 2008).

Ronan Carter, head of procurement at pharmaceutical firm Allergen, says he is rewarded for savings, as well as customer satisfaction and development of the department.

Another purchasing director adds: “Since my procurement roles have always been about more than just savings, my bonus payments have also been about more than just savings.”

Unsurprisingly, recruiters say good bonuses make a vacancy more desirable, often attracting a more confident, commercially minded breed of buyer.

“Confident candidates want to know what they can control. Bonuses are not seen as something that puts candidates off,” explains, Duncan Ward, associate director for procurement and supply chain at Badenoch & Clark.

However, recruiters agree that the bonus culture in procurement is still in its infancy. “It’s lacking consistency. Some organisations offer bonuses, but usually because all of the commercial functions are on bonus arrangements,” says Pat Law, managing director of Hays Procurement.

Richard Silk, director at CIPS-GPA, suggests it will be down to individuals to dictate their rewards, even if this means forgoing bonuses altogether.

“A bonus culture tends to be driven by the individual. Base salary and fixed benefits, including pension contributions and car allowances are far more important to the procurement community. Purchasers are too savvy to rely on tomorrow’s jam, particularly in today’s climate.”

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