On average each member of staff will receive 12,000 shares next month, worth £75,000 each (equal to a pot of £150 million). This is in addition to the typical share award of £15,000 that Sports Direct gave employees last year.
The scheme is not limited to executives, but is used as a tool to influence staff behaviour and maximise group performance. With an average salary of £20,000 last year, the bonuses are equivalent in proportion to salary as received by many bankers in the height of the boom.
Sports Direct has seen profits increase by 22% to £287.9million to April 2013, exceeding the target of £250million set in the 2011 bonus share scheme. The company has benefitted from the boost to sport from the Olympics and the collapse of rival JJB sports last year as well as the opening of many new stores. However it also in part attributes its success to slashing staff turnover from 30% to just 15.5%.
Employee bonus schemes can help employers to recruit and maintain motivated employees, nurture loyalty and improve productivity. They work well in a recession, whether payments are made in cash or shares as they help individuals identify with company performance and objectives. Businesses are not committed to high basic salaries but can pay out when the company does well. They can give employees something to aim for at all levels within the organisation.
These schemes obviously work best where a company, such as Sports Direct goes through a period of unprecedented growth. However, they can also be useful when an economy moves out of a recession and profitability increases, so that employees are motivated by growth targets.
The good publicity received by Sports Direct around its scheme has certainly led to increased interest in bonus schemes. Such schemes must be tailored for each organisation. Factors to consider are its size and culture. The scheme must be affordable and any performance criteria reflect the objectives and values of the business.
Often bonus schemes reflect a broader set of company objectives, rather than just an increase in profit for the business as a whole. Examples are attendance, customer service and team and individual performance. The idea is to increase employee motivation by establishing a clear link between pay and performance and encourage change within an organisation. It is important that the rules of the scheme are properly drafted and that the incentives are appropriate and achievable.
Employees gain a stake in the business and an opportunity to accumulate wealth. There is no risk in joining such a scheme. However, the scheme will only encourage motivation and loyalty if employees can see that they will at a specified point receive a payout.
Tanya Gruneberg (pictured) is an associate at law firm Ashfords
