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.
- In short-term incentive plans: STI design typically involves operating metrics such as revenue growth and profit growth, complimented with short-term oriented ESG metrics such as policy improvements.
- In long-term incentive plans: LTI design typically involves investment metrics such as Total Shareholder Return and return metrics such as RONOA, ROCE and EPS, complimented with long-term oriented ESG metrics such as climate protection.
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 and on BBC World Service (audio). An English translation of Hermann Stern’s German book contribution on 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.