When bonuses turn bad

By: Mark Hook

Date: 7 May 2010

I read recently that Portsmouth FC manager Avram Grant expects to have his first-choice team available in the FA Cup final after his key players indicated a willingness to waive the lucrative bonuses in their contracts.

To stunned audiences nationwide, Portsmouth thrashed Spurs recently and will play the Wembley final on May 15. The players' bonuses were contracted to kick in if/when the Club reached the final.

But Portsmouth is in financial turmoil – it went into administration in February with, apparently, debts of £70 million. This leads me to wonder why the club would even offer players contracts that offer cash payments ranging from £50,000 to £100,000 in the first place.

Perhaps the club felt they needed to offer bonuses to lure top class-players away from the glittery clubs and expensive shops in London. Or maybe Portsmouth didn't really expect to get so far in the FA Cup and were confident that the bonus clauses were good window-dressing that they'd never have to pay out. Whatever the Club's reasoning, it's a strategy that has backfired, and put them under even more money pressure.

This should be a warning to small businesses suffering their own money troubles. Employee perks and bonuses can be an effective way of attracting and retaining employees, eventually improving business results. But cash payouts, as well as the most common incentives, such as company cars, season-ticket loans and gym membership, can prove costly.

If you're struggling, remember that before offering remuneration packages you should take into account how appealing any bonuses will be to potential employees – and also much it costs to provide, then administer them.

If your firm still has incentives to fulfill under your employment contracts, you may have to rethink. Negotiating discounts with local suppliers is a clever way for businesses to continue to provide great employee benefits – for example, you could negotiate a group-rate gym membership with a local firm. Small firms should also consider offering low- or no-cost opportunities such as flexible working, which employees may value more than a pricy perk.

However, don't be too mean - it's essential for small businesses to balance an exciting remuneration package that attracts the best candidates with the long-term financial considerations of the business. Otherwise when your big day comes round, you may find your best players are missing.

There are legal considerations to take into account when offering benefits such as flexible working. Make sure you keep up-to-date on the Law Donut.

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