According to a recent news report from CNA, eligible Singapore Airlines (SIA) staff could receive around eight months’ bonus on the back of its record FY2022/2023 earnings. This comprises a record 6.65 months’ profit sharing bonus and an ex-gratia bonus of 0.5 months for each of the last three financial years, for a maximum total of 1.5 months.

However, SIA is not the only company to have announced a bumper bonus in the past couple of years. Others, like South Korean refining company and bunker supplier Hyundai Oilbank, reportedly gave up to 120 months’ bonus in 2022; Taiwanese shipping giant Evergreen Marine gave out year-end bonuses worth up to 52 months in 2022; and even local supermarket chain operator Sheng Siong awarded up to 16 months’ bonus to eligible staff in 2021.

While most companies strive to maximise profits and control costs, some are more willing to offer significant annual bonuses to their staff. Here are some reasons why:

Allows Employees To Profit Share From Company’s Performance

Companies that tend to award big bonuses are typically cyclical businesses like those in the oil & gas, shipping, finance and even tourism industries. In good times, they are able to make large profits, while in bad times, they may suffer short-term losses. Bonuses are a way for such companies to allow their employees to share in the profits during the good times, while they may not issue any when they are losing money.

Companies like SIA also have a long-standing annual profit sharing bonus formula, making it transparent for employees how they will be rewarded. This helps to motivate and align the employees towards achieving the company’s goals and targets, which eventually contributes to the company’s success.

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Helps Keep Employees In A Tight Labour Market

Annual bonuses may be used by companies as a way to retain employees to stay with them throughout the year (and beyond).

For instance, some companies may issue their employees annual bonuses for the previous year in either March or April. For employees to be eligible to receive it, they might be required to stay employed with the company for at least another month after payment or as specified in the employment contract or company’s employee handbook.

Should the employee resign or tender notice before fulfilling this condition, he may not be eligible to receive the bonus. Therefore, big bonuses incentives employees to stay longer with the company.

Allows Companies To Offer A Competitive Remuneration Package

Big bonuses may not only help retain the company’s current talent pool but could also attract new talent. Companies may factor in the potential annual bonuses as part of the overall remuneration package that they offer to new candidates to remain competitive in a tight labour market. This can be particularly observed in the oil & gas and banking industries, where top talent is highly sought after along with equally strong competition for these jobs by candidates.

Another way that companies may use big bonuses to remain competitive in the job market is to use them to compensate for a lower annual salary increment. This allows the company to stay nimble in a challenging economic environment where the base salary costs are kept lower with a higher discretionary bonus component.

Read Also: Additional Wage (AW) Ceiling: How Much CPF Contributions To Make For Bonus & Leave Encashment To Employees

Acts As A Form Of Recognition And Morale Boost

Annual bonuses are a way for companies to recognise the hard work put in by the employees throughout the year. It can also be used by companies to reward and motivate employees that stay committed when the company was undergoing changes or through a difficult period.

For example, SIA is rewarding all its staff (except senior management) an ex-gratia bonus of 0.5 months for each of the last three financial years, for a maximum total of 1.5 months. This is a goodwill payment rather than a legal obligation on the company. According to SIA, this payout was meant to recognise the “dedication, hard work and sacrifices, including the pay cuts during the pandemic”.

Bonuses Are Not An Entitlement But A Privilege  

Bonus payments are not compulsory unless they are specified in the employment contract. According to a Randstad survey, 1 in 5 employees were told they would not be receiving a bonus for their work contributions in 2022. This highlights that though most companies issue bonuses to their employees, it is not an entitlement granted to all workers.

As we face a more challenging economic environment in 2023, bonus payments should be regarded as a privilege as they serve as an indication that our company is still doing well.

Read Also: How Much Has The Government Paid In Bonuses Over The Past Decade?

The post SIA Staff To Receive 6.65 Months Profit Sharing Bonus: Why Do Companies Pay Out Big Annual Bonuses? appeared first on DollarsAndSense Business.