Record bonuses paid to UK employees — but are they fair?

New figures show that UK firms paid a record £44.3bn in bonuses in the last financial year, an increase of 4.4% from the previous year.

Bonus payouts have surpassed the previous record set in 2008, when the total stood at £42.5bn, the Office for National Statistics (ONS) said on Thursday.

The finance and insurance industry accounted for the largest share of the total but other industries, especially those in professional and high-tech business services, have been the biggest drivers of growth since 2008.

Finance and insurance paid the highest average bonus, at £13,400, while health and social care paid the lowest average bonus, at close to zero. The average bonus per employee at the whole economy level in the year to March 2016 increased to around £1,600, up 2.4% over the prior financial year.

But just how effective and fair is the system of bonus payments?

A global survey by the Chartered Institute of Management Accountants (CIMA) has found the UK has one of the least meritocratic bonus systems in the world.

Among finance professionals whose companies operate a bonus scheme, more than a third (35%) feel that bonuses for top earners are undeserved. That proportion is only topped by the United Arab Emirates, where 42% felt they were unjustified.

What’s more, almost two thirds (62%) of UK professionals felt that unjustified bonuses caused resentment amongst their colleagues.

CIMA is calling for bonus systems to be redesigned so that they encourage long-term success rather than only short-term performance.

Professor Wim A Van der Stede, CIMA Professor of Accounting & Financial Management, said:

“These findings reaffirm some well-known issues of incentives related to a narrow focus on what is rewarded and other myopic behaviours. But they also suggest that perceptions of ‘unjustified’ bonuses, whether stemming from ineffective incentive designs or not, can trigger resentment and undermine employee engagement and motivation. This hurts performance, exacerbates myopia and corrodes culture.

“Designing effective incentive systems is hard, yet incentives that may be fair may not look fair — a challenge that touches on the issue of transparency as well as the question of both how and how much to incentivise.”