One of the best ways to encourage staff to go that extra mile is to run bonus schemes. These are even more effective when the reward is in the form of shares, so that remuneration is directly linked to performance of the company, past and future. It motivates staff, attracts and retains talent and incentivises hard work. A company in the UK that has had spectacular success following such an approach is Sports Direct (SPD).
The group itself says its impressive revenue and profitability growth over the past few years has been underpinned by the employee bonus share scheme. Since its introduction, Sports Direct has seen improvement across the business, not just in shop sales, but from energy consumption to staff retention. It's also one of the most generous schemes out there. Last August, 2,000 staff members received 25 per cent of their annual salary in shares and will get a further 75 per cent of their salary in shares this August, having achieved the targets set out in the 2009 bonus scheme. The first round of bonuses averaged 5,000 shares per employee, equating to £15,000 each. The second tranche averages 12,000 shares per employee, which at a share price of 468p equates to £56,000 each. That's a pretty sweet incentive.
The current bonus scheme runs from 2012 to 2015, and is based on achieving challenging, but realistic, underlying profits of £215m in 2012, £250m in 2013, £260m in 2014 and £300m in 2015. All targets must be met before the shares vest in 2015 and 2017. Already, the 2012 target has been exceeded and in a pre-close trading update the other week, management reiterated its "certainty" of reaching its super-stretch target of £270m for 2013. Although the trading statement also reported bumper sales over the nine weeks to 31 March, the important news from an investor's point of view was the bonus. The fact that the target will be met not only signals earnings growth, but suggests employees are happy and that shareholders won't be in for any nasty surprises when the full-year results are reported on 18 July.
Sports Direct's bonus scheme isn't the only one around, but it's certainly the most generous and has powered the group through the harsh conditions of the economic downturn to defy economic gloom and snap up market share as rivals have fallen by the wayside. John Lewis, another shining beacon of high-street success, has a renowned bonus scheme, too. Although not as potentially lucrative as that of Sports Direct, it's still very generous and has doubtless contributed to the company's similarly stellar performance. Each year the board decides how much of the company's profit will be allocated to a bonus pot, and from there it works out the reward percentage. In the 2012-13 financial year it was 17 per cent of base salary, preceded by 14 per cent the year before and 18 per cent the year before that. Although employees aren't given shares, this offers them an equal stake in the company's fortunes, from the humble perfume assistant to the top manager. John Lewis calls it 'co-ownership' and refers to employees as 'partners'.
And from a customer's point of view, the difference in service in a place like John Lewis and Waitrose is palpable when compared with some of its peers. Staff are friendly and more than happy to help. In my case, a shop worker at Waitrose advised me against one product, as the cheaper option was just as good, offering better value. When I then inquired about a certain organic kitchen spray that wasn't on the shelf, she scurried away and returned seconds later with the bottle, all done with a smile on her face. You get the impression, at least, that they want to help, not that they have to. The same is true of Sports Direct, where 'colleagues' are ready, waiting and eager to assist, rather than hovering in a corner, hoping not to make eye contact - as is the case in some other high-street shops I can think of.
Cobbler and key-cutter Timpson, which is expanding across the UK by launching into supermarkets, also has an employee bonus scheme. John Timpson, chairman of the family business, recently said in his regular Telegraph blog: "Bonus schemes are a brilliant way to put buzz into your business, but if you get them wrong they can cost money and demolish morale. Find a system that works and stick with it - good incentives keep running for years." That is what Sports Direct has done and the retailer's continuing success is proof that the is scheme working - and that for shareholders, bumper bonuses often mean tasty returns.
