Nestlé SA has revamped its bonus plan with the payout cap lifted for top performers and underachievers likely to receive significantly reduced payments or none at all this fiscal year.
The Swiss food group, which is in the midst of overhauling its culture to focus on performance, is introducing six rankings for its 271,000 employees to determine payouts, compared with three levels previously.
Employees dubbed “exemplary,” the highest level, will be eligible for a payout of as much as 150% of the bonus target, up from a previous limit of 130%. Those at the lowest “unsatisfactory” ranking will receive no bonus at all or at most 50% of the target, according to people familiar with knowledge of the matter.
The move is a major shift for a company once known for its staid culture. In the past, almost all workers usually received at least 80% bonus payouts, even those meeting just the minimum requirements, the people said, asking not to be identified discussing internal company matters.
A Nestlé spokesperson confirmed the new bonus system and said: “The idea behind the whole framework is to really develop people. We also want to change how people behave.”
Philipp Navratil, the recently appointed chief executive officer, said not long after taking the top job in September that he wanted to bring back ambition and growth to a company whose sales have been lackluster for years. He said everyone in the business, including himself, would be judged by the same metrics.
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“It will be easy to see who is performing and who's not,” he said at the time. “We will be ruthless in assessing our people.”
Last week, Nestlé forecast sales and profit growth this year, even as it continues to battle volatile consumer demand, falling volumes, bloated costs and the largest infant formula recall in its history. Navratil said then that real internal growth — a key measure of volumes closely watched by analysts and investors — will become a primary performance indicator for bonus payouts.
Employees have already been informed that bonus outcomes will be more closely tied to group and division performance, as well as individual key indicators.
The move by Nestlé, whose shares have dropped about 31% from a peak in 2022, also reflects a wider focus on performance as multinationals fight for growth in tough markets. Unilever Plc, which is cutting roughly a quarter of the company's top 200 managers to eliminate “mediocrity,” now links annual bonuses to the performance of a manager's department, rather than the company overall.
“It's a very, very differentiated reward system versus what we used to have in the past,” Chief Executive Officer Fernando Fernandez said at the Consumer Analyst Group of New York conference last week. Fewer employees are receiving the top end of their bonuses and only 55% of workers are getting between 80% and 120% of their payouts, compared with 90% in the past, he added.
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