Case Study: How a new bonus plan led to Avnet saving US$300,000 yearly

For Avnet Technology Hong Kong, in the business of supply chain of electronic component solutions, having great people is a strategic differentiator.

Hence, “inspired and engaged people” are one of the core components of its strategic framework.

In the past couple of years, however, Avnet noticed the employee turnover at its logistics centre was particularly high, especially among its distribution centre (DC) assistants. Hence, in October 2014, it formed a project team within HR to address the persistent high turnover in this function.

In January 2015, the team introduced an engagement bonus programme to its DC assistants.

It works by giving 90% of DC assistants a bonus at the end of the FY in July, based on the employee’s individual performance rating as well as the percentage attained of the perfect attendance allowance.

The top 20% of DC assistants receive a bonus of about 67% of the average monthly salary, the top 21% to 90% employees receive around 53%, while the bottom 10% do not receive the bonus payout.

The programme was approved by senior management and the team partnered with line managers to communicate it to employees via face-to-face meetings.

When devising the new programme, the team made sure the coverage of the targeted group was wide enough to engage performing employees – and also making sure the payout amounts were calculated fairly while being significant enough to motivate staff.

Other considerations included the cost-benefit analysis, time and duration, senior management buy-in and collaboration with line management.

The programme saw huge success in reducing the turnover rate for the DC assistants – from 26% in FY14 to 5.7% in FY15, leading to a drop of the overall turnover rate from 23.9% to 9.3% for the logistics centre, far below the target of 18% set by management.

Other than improving the turnover rate, the programme also improved employee attendance by an average of 6.2%, brought about cost savings of US$$300,000 per year, and reduced the number of quality issues from 30 in the first half of FY15 to 11 in the second half.

On the future of compensation and benefits, James Tan, senior vice-president of human resources at Avnet Asia Pacific and the Asia regional HR centre said: "An innovative and forward-looking compensation strategy is needed to ensure that our talent pool are remunerated competitively with greater emphasis on variable pay to achieve consistent performance, especially in a tough or slowing business environment."

"Our variable pay plans/incentive plans have to focus our leaders and individuals in their respective teams to drive continuous profitable growth while ensuring that there is a strong linkage between performance and rewards."

For more case studies from Singtel, SMRT and Astro, and tips for building a top compensation and benefits strategy, head over to the Human Resources’ March feature.