Implementing the Obermatt Bonus Index in your company
Implementing the Bonus Index in your company requires little change:
- The Bonus Index will only replace the currently negotiated performance target with an indexed target for the same metric.
Everything else remains - if desired - the same:
- Companies use existing indicators that fit their strategy.
- Other system components such qualitative goals and discretionary bonus awards based on personal judgments are independent of the bonus index and may be maintained or abolished - as desired by the compensation committee.
- The types of payments such as cash, stocks or options can be maintained as is.
A typical Bonus Index implementation requires three steps and less than two months:
For ongoing operations, Obermatt provides the indexed results on a quarterly basis so that executives know where they stand throughout the year.
Bonus Index Designs
Clients typically use one of three implementation designs:
- As an input to annual bonus setting: The Swiss retail bank Raiffeisen uses the Bonus Index as input in setting the bonus pool.
- As a vesting clause for multi-year, long-term-incentive bonus plans: The Nivea company Beiersdorf uses a multi-year indexed metric threshold for a long-term incentive plan.
- As a formula for annual cash bonus plans: for STI or LTI bonus plans: The Swiss specialty chemicals company Sika and the technology company Meyer Burger use the bonus index for annual bonus payments. The logistics company Panalpina and the German fragrance company Symrise use the bonus index for the multi-annual compensation (LTI).
There are published case studies of Bonus Index implementations in German from Zumtobel, SIKA, Beiersdorf and Symrise, and Phoenix Solar. The Bonus Index has been discussed in the Economist, the Financial Times, Financial News (2010, Banks) and on BBC World Service (audio). An English translation of Hermann Stern’s German book contribution on the indexing performance and compensation is available for free on the Social Science Research Network.
To see how your bonus plan could look, Obermatt completes a complimentary simulation of your Bonus Index and compares it to your existing plan. Contact us to set a time for an appointment with our CEO.
You would like to hear this from our customers?
We will arrange personal contacts with people who have been satisfied with the bonus index system for years. From compensation chief (comp & ben) to the chairman - we have customers that are available to provide a reference.