While the bankers look back mournfully on the happy days of bombastic bonuses, supermarket managers are cleaning up. Performance-related payouts are the next big thing, reports Nick Hughes

Bonus is officially a dirty word. Once a sign of success, it now represents the high-risk high-reward culture that brought the UK to the brink of bankruptcy. So when the new coalition government last week declared war on the "unacceptable" bonuses doled out to investment bankers, you could have been forgiven for believing the days of the cash incentive were numbered.

Not in retail they're not. A large chunk of Marc Bolland's £15m 'golden handshake' on joining Marks & Spencer was dependent on hitting performance targets his basic salary amounts to 'just' £975,000. Tesco's 2009 annual report shows Sir Terry Leahy pocketed £1.24m in short-term cash bonuses in the 2008/09 financial year, nearly doubling his £1.36m basic salary. Meanwhile, Justin King is expected to trouser a seven-figure sum this year after leading Sainsbury's to a 17% hike in annual profits.

And it's not just the top dogs hitting the jackpot. Data from our Retail Salary Survey, carried out by Quest Search and Selection, shows supermarket store managers, who can command a salary of up to £125,000, can expect to earn a bonus of up to 40% of basic salary if the store achieves sales targets.

Sainsbury's, meanwhile, last week announced 127,000 staff would share an £80m bonus pot, equating to £620 each, on the back of the supermarket's stellar results. Not a bad perk in the midst of a recession.

Of course, rewarding achievement is by no means a new concept. As Sainsbury's talent manager Nikki Tysoe says: "It's common in our sector for rewards to be based on the performance of the business."

Yet the idea of pay being skewed towards performance has been gathering momentum in recent years. Why?

Some experts believe businesses want to avoid being seen to offer inflated basic salaries at a time when many sectors are implementing wage freezes.

"It might be that businesses want to keep their good people and are thinking 'we're going to differentiate the pay this year more than perhaps has been done in the past'," says Siân Harrington, editor of Human Resources magazine.

Morrisons is a case in point. When Bolland jumped ship for M&S, the retailer's board was keen to tie down its top executive talent, most notably group retail director Mark Gunter and finance director Richard Pennycook.

Although both men's basic salaries were frozen at £540,750 for this financial year, Morrisons' remuneration committee deemed Bolland's defection meant it was "responsible and commercially appropriate" to increase the maximum annual bonus potential for executive directors from 100% of base salary to 200% for 2010/11, as well as increasing the bonus potential for less senior directors. Gunter and Pennycook also received an additional long-term incentive plan award of 100% of salary.

In a further sign of long-term incentivising, incoming chief executive Dalton Philips' basic pay of £800,00 (£50,000 less than that of predecessor Marc Bolland) will be boosted by a maximum potential annual bonus of 200% of base salary, with 50% deferred into shares for three years and a long-term incentive plan of 275% of base salary.

Outside the boardroom, the trend towards bonus payments is equally apparent. Regional and store managers are handsomely rewarded for hitting sales targets, as the Quest Search and Selection survey shows. "These people are very motivated and the whole system is invariably oriented to their own performance," says Peter Burgess, managing director of recruitment agency RHR. "These are huge jobs; they're employing hundreds of people, possibly even 1,000; a big Tesco store is bigger than most companies in Britain."

The average bonus for a regional manager stands at 20%, while an area manager can expect to earn 18% on top of a basic salary of £48,300. "Large retail companies are still paying out bonuses because their results haven't been as bad as people thought they would be given the economic climate over the past year or so. The predicted tail-off in consumer spending hasn't happened yet," says Quest Search and Selection managing director Simon Whittington.

All things considered, grocery retail is currently a good place to work. All the major supermarkets are on recruitment drives as they continue to grow sales.

"I've not seen any evidence of pay freezes," says Burgess. "In the recession of the early 90s you were always hearing about pay and recruitment freezes but this time around we haven't heard it at all."

Burgess believes the relative stability of retail is playing to its advantage. "People have realised, perhaps for the first time, just how important retail is as a business. It is the country's largest employer, it is creating a lot of jobs compared with other sectors, it's stable and our retailers are respected around the world."

That's not to say there aren't challenges in retail recruitment. Sir Terry Leahy may have famously risen from shelf stacker to head of the Tesco empire, but not all employees are as easy to hold on to. "Companies still have to be competitive and make working for them attractive in order to retain people because there is plenty of movement within the retail sector," says Whittington.

The recent departures of Darren Blackhurst from Asda and Ian Dyson from M&S after being passed over for chief executive roles highlighted the difficulties involved in keeping ambitious staff happy. "I think it is inevitable that people who see themselves as the next CEO-in-waiting are going to jump ship," says Harrington.

Tesco, she adds, is a past master of succession planning with a track record of recruiting from within. "You feel that Tesco's got a few people there who, if Leahy were to go, could seamlessly slip into the role."

Ultimately, the top retail talent remain masters of their own destiny. One recruiter claims that some buyers can command salaries 20% above standard packages if they have qualities specific to a particular role. And Tysoe cites online roles as being particularly difficult to fill with the right person.

Whether salaries will continue to climb will depend on the macro economic environment. With some commentators predicting tax hikes and a possible double-dip consumer recession, cash could be at a premium. For the moment, however, the bonus culture still prevails in retail. Just don't shout about it to the bankers.

Bolland’s bumper bonus
Basic salary of £975,000 on becoming new M&S chief executive
Annual bonus potential of up to 250% of salary
Annual award of shares under the company's Performance Share Plan, which in 2010/11 will be an exceptional award worth 400% of salary £1.6m in cash and £1m worth of shares to compensate for loss of Morrisons bonus and shares
Restricted Share Award worth £1m Performance Share Plan worth £3.9m to compensate for 2011 and 2012 vested shares