Dear colleagues,
Our human capital is a reflection of our company DNA: passionate, entrepreneurial and ready to meet complex challenges. This is why – with the notable exception of 2020 – we at BESIX have always rewarded our employees with bonuses. Year in, year out, the group has put aside a large share of its operational profits to fund its flexible reward policy.
Annual bonuses are traditionally designed to provide an effective means to motivate and reward eligible employees, based on the achievement of specific common and individual performance objectives during a calendar year. At BESIX Group, the envelope used to grand flexible rewards has usually been defined by analogy with the payment done during the previous years, and corresponds to a specific percentage of the salary mass.
To provide clear recognition for employees who meet or exceed specific targets, the group applies a clear, transparent and performance-based mechanism to calculate the measure in which the amount of the envelope is to be freed for granting bonuses. This way of working is a best practice in many companies in Belgium and around the world.
This mechanism is based on a tiered system: the performance at group level and the performance at entity/business unit (BU) level.
- The performance at group level will be based on one single key performance indicator, the Net Profit. This single KPI is fixed and applicable to every entity/business unit in the Group and cannot be differentiated. This KPI counts for 30%.
- The performance at entity/BU level will be based on a weighted average of three key performance indicators, that might be slightly different from entity/BU to entity/BU according to the core business. For instance: EBIT, New Orders Signed, Days Sales Outstanding. This set of KPIs counts for 70%.
- The combination of these two KPIs determines the bonus envelope for the entity/BU.
Note: The bonus allocation at individual level results from the formal evaluation of performance of each colleague with his or her manager and is entirely personal and specific.
In this context, what is ‘on target’, ‘below target’, ‘above target’ worth?
- ·100% is the by the BESIX Group Board approved Net Profit target (which includes all provisions such as the provision for bonus payment).
- If the group does not meet 70% of its Net Profit target, the bonus envelope will not be released.
- If the group exceeds 70% of its Net Profit target, the budget envelope will be released linearly from 70% up to a cap set at 130%.
The same mechanism and the same floor (70%) and cap (130%) are applied at entity/BU level.
Why is this a good system?
With this mechanism, envelopes are attributed at entity/BU level in a transparent and similar way. This mechanism enables to share one common target, which is a unifying driver, and also enables to ensure internal equity. In a situation where an entity/BU is performing well while the group is underperforming, colleagues of the entity/BU are still rewarded for their entity/BU performance. Similarly, when an entity/BU is underperforming while the group is performing well, colleagues of the entity/BU are pushed up by the group.
What does it mean concretely at mid-year 2021 at group level?
As you know, the 2021 performance at group level so far is mixed. Some strong achievements have been reached in some domains, while other projects are still facing loss-making. The Net Profit target that had been set at the beginning of the year is not yet in sight. However the first projections show that the Net Profit could amount to close to 70% of the fixed target.
Very concretely it means that if the threshold of 70% of the target is reached, 70% of the bonus envelope can be released at the end of the year. Nevertheless, as stated above, if a target is reached at less than 70%, no bonus envelope for the group-tier will be released. So more than ever, we need to continue to be as productive and resourceful as we have been in the past, capitalising on both our expertise and collaboration skills. Generating cash income by operational excellence, meeting deadlines, involving Procurement in negotiation, focusing on contractual issues, invoicing variances and claims correctly and on-time, closely monitoring Days Sales Outstanding are very concrete actions that can move the needle in the right direction.
What does it mean concretely at mid-year 2021 at entity/business unit level?
It is disheartening to see that while the economy seems to be recovering after the pandemic, our sector is now hit by a heavy price inflation of construction material, as well as by various degrees of shortages, the costs of which we often cannot pass through to our clients. This is not helping our industry that already had to face thinning margins. This explains the poor financial performance of our contracting entities and contracting business units. Assets-based businesses like BESIX Real Estate Development and Concessions, or specialised businesses like Van den Berg, Socogetra or BESIX Infra, are faring better than our contracting businesses.
Very concretely it means that for some entities/business units, the threshold of 70% of target achievement is still very challenging to be reached (yet), hence not releasing the bonus envelope (yet). Again, perseverance and stamina are paramount to overcome these obstacles. Our group has had its share of difficulties in its history, and has proved then and again how capable and resilient it was in prevailing.
What does it mean concretely at individual level?
If the bonus envelope decides the bonus potential, it is of course each leader’s responsibility to ensure that the best talents and performers in his or her team get their fair share of the available envelope, based on the evaluation of individual objectives, performance criteria and motivation.
Conclusion
With a tiered performance-based bonus policy, both efforts at group and entity level can and will be weighted and rewarded. The bonus policy, which is based on a set of well-defined KPIs, allows everyone to understand his or her impact in contributing to the level of release of the bonus envelope. Tendering and signing awards with correct margins and appropriate risk allocation, invoicing clients in time to maximise cash generation, keeping expenses under control, activating assets… are all actions that every employee can influence at his or her level.
Up to us all to make it happen that we continue to aim for the financial performance targets that were set at the beginning of the reach.
Thank you for your active involvement,
Pierre Sironval
Deputy CEO