Employees are still able to negotiate lucrative bonuses, in spite of the economic downturn, as financially sound companies cherry-pick the best staff from struggling institutions.
Headhunters are now offering to match bonuses paid by a current employer in the hope of tempting high-flyers to jump ship.
Recruitment firms say that, given current market conditions, with most bonuses expected to be significantly lower next year, this represents a very good deal.
“If someone can guarantee their bonus next year, they know that in the worst-case scenario they won’t be worse off and that’s attracting people to move at the moment,” says Ben Barrat, head of talent acquisition at Alexander Mann Solutions.
He says many businesses are offering a guarantee of 80 to 100 per cent of a person’s bonus next year.
“There are a lot of financial services businesses that are in very good shape and are saying – let’s go out and cherry-pick the best staff.”
Many of the employees are opting for cash bonuses instead of share options or performance share plans.
The falling value of shares has meant that many share options have not reached their exercise price, rendering them worthless. And performance share plans, which award shares provided performance conditions are met, only promise a bonus over a relatively long time horizon of three years.
“Share schemes are attractive, but not as much as guaranteed bonuses – people are looking very short and medium term at the moment,” says Barrat.
But accountants say that share schemes can still have a lot of value for employees.
Performance share plans, also referred to as long-term performance plans, or L-tips, have grown more popular than share option schemes in recent years and are seen as more stable, according to Sue Bartlett, a pay consultant at Watson Wyatt.
“With a share option, you have to see the share price go up; with a share award, you’ll get something even if the share goes down,” she explains.
Performance share plans tend only to be offered to senior executives, but other share schemes can be offered to all employees regardless of their level.
There are two main kinds: share option schemes, known as save as you earn schemes (SAYE) and share incentive plans. SAYE schemes allow employees to save through their employer into a bank or building society. Employees then have the option of taking their savings when the plan matures – often after three years – without having to buy shares. A tax-free cash bonus will be paid, which is roughly in line with interest rates.
Incentive plans allow options to be bought out of net salary but employees pay no income tax or national insurance on the profits made from exercising the options, though if the shares are later sold, they are subject to capital gains tax.
Restrictions apply. Bartlett says most companies have predetermined programmes. But there may be some room for negotiation between how much of a bonus is taken in cash and how much is taken in shares.
Carol Dempsey, reward partner at PWC, says that deferred annual bonus plans – or Dabs – have grown in popularity, particularly in FTSE companies.
These offer the option of taking half the bonus in cash and the other half through a performance share plan or share options, called a share award. Often, the company will match the amount taken in shares by the employee, making it potentially a very good deal.
But Dempsey warns that employees should check the small print – if they leave the company before the three- year period is up, they could lose all the options.
In general, Bartlett argues that there is more incentive than ever for employees to join either a SAYE or share incentive plan. This is partly because shares have already fallen so much in value, but also because payments in share incentive plans are made gross, adding an extra 40 per cent in purchasing power for a higher-rate taxpayer.
