Designing fair annual bonus formulations for workers: A case study of the state-owned enterprise cement holding in Indonesia

Abstract

A bonus is an additional annual incentive for labour, as part of remuneration package systems, that goes hand-in-hand with a tantième for boards of commissioners and directors. This practical business is common in industrial relations for maintaining a spirit of productivity and loyalty. However, practices to distribute bonuses remain undisclosed and unknown, according to the views of labour. Without an earlier mutual agreement between parties, consisting of labour representatives and management, management unilaterally decides a specific bonus formulation that takes effect immediately. The management ignored suggestions and advice from labour as its partner; worse, there were no discussions between parties in advance. There are no equal labour and management rights to build a better industrial relations climate. We employed mixed methods and conducted multidisciplinary studies to determine cluster and bonus pool allocation with relevant peers to investigate how to build a fair bonus formulation. We adopted a target-based method rather than an outcome-based framework after several exercises. The most important finding is that the bonus formulation, configured from the annual bonus, utilised three underpinning percentiles (P): P-25, P-50, and P-75 implying the lowest, medium, and highest total remuneration for labour, respectively. We determine that success indicators in developing fair bonus formulation stand on how high total remuneration has been achieved by labour towards the median level of peers. The higher the value passed over the median line, the higher the success rate. The present findings contribute to building fair annual bonus formulations in the cement sector; however, other industrial sectors can use them with adequate adjustments.