Milestone Awards

What milestone awards are

Milestone awards are a sum of money or a benefit given to an employee on reaching a set length of service with the organisation. The milestones and the amounts are announced in advance, and the award goes to everyone who reaches a milestone, with no condition other than reaching it.

Three conditions define it together: an announced milestone, whose date is known before it is reached; universal entitlement, so nobody who reaches it is excluded; and length of service as the sole cause, with no performance or results condition added. Add a performance condition and it becomes a different tool. Withhold it from some of those who reached the milestone and it becomes a discretionary decision made case by case rather than an announced entitlement.

Where it sits between two neighbouring tools

The three tools are told apart by what they pay for, not by how much:

• A spot award, as that term is defined, is given for something that happened and was not expected, and is not something the employee can claim. Its subject is a particular act, it looks backwards, and its surprise is part of its effect.
• A retention bonus is a prior commitment earned by staying until a set date or until a set piece of work is finished. Its subject is staying, it looks forwards, and it is agreed with one person in a role the organisation wants them to remain in for a particular period.
• A milestone award has as its subject a period already served. It looks backwards like a spot award, and it is universal and announced like a retention bonus. It takes one feature from each and matches neither.

This makes a difference to what can be expected of it. A retention bonus is agreed in order to buy a period that has not yet passed; a milestone award is paid for a period that has passed and over which the decision no longer has any effect. Anyone who adopts one to prevent an imminent departure has bought something that is not for sale: the sum is paid to whoever reaches the milestone, whether they meant to leave or not.

Hiring records set the cost, not the policy

This is the point to keep in view. How much the organisation pays in a given year is not settled in the policy document; it is settled by how many people were hired, years earlier, at the distance of the milestone.

Take an organisation whose first milestone falls at 5 years and is worth SAR 5,000, and assume that 55% of each hiring intake stays until its fifth year. The figures are assumed to show how the calculation works, and the retention rate has to come from the organisation’s own data rather than from a general figure:

• 48 people were hired five years ago. The number expected to reach the milestone this year is 48 times 0.55, or 26.4 people, at a cost of SAR 132,000.
• 12 people were hired four years ago. The number expected to reach it next year is 12 times 0.55, or 6.6 people, at a cost of SAR 33,000.

So the line falls by 75% from one year to the next without a word of the policy changing or a riyal of the award. The reason is that the first hiring intake was four times the size of the second.

It follows that the budget line for this cannot be built on today’s headcount. It has to be built from a schedule read off the hiring record and multiplied by the retention rate. Anyone who budgets it as a fixed share of the payroll gets it wrong in both directions: too high in a year with no large intake behind it, too low in the year an old expansion intake arrives.

A threshold motivates only in the months just before it

A milestone is a hard threshold: the full amount is due on reaching it and nothing is due before. So its effect on behaviour is spread unevenly across the period:

• An employee four years and ten months in is two months away from SAR 5,000, and the sum is present in their decisions.
• An employee six months in is four and a half years from the milestone, and the sum does not enter their decisions at all.

The tool is paid for across everyone, while its effect on behaviour falls on those in the last months before each milestone. Anyone who wants it to move behaviour across the whole period needs closer milestones, and the closer the milestones, the lighter the effect of each and the more payments there are.

This also shows that describing the tool as a reward for loyalty is inaccurate. It rewards people who reached the milestone, and they may have got there for other reasons; the tool reaches them after those reasons have settled, not before. Anyone who wants to affect the decision to stay itself needs tools that work at the time of that decision, not a payment made at a milestone already passed. What keeps someone wanting to stay is the subject of affective commitment.

A second effect goes with this. An organisation that ends a relationship, or whose employee ends it, a few weeks before a milestone faces a question about the difference. What it does is a decision to write into its policy before the case arises, not at the time, because the answer improvised in the first case becomes the rule applied to everyone after. We found nothing, in the sources we reviewed, that settles what ending the relationship before a milestone does to an award not yet earned, which is why the answer has to come from the policy itself.

What it is good for, and what it is not

Argument about this tool can turn on a badly framed question: should an employee be rewarded for time passing? The answer is that the tool was not built to change behaviour but to acknowledge something that has happened. Read that way, its limits become clear:

• It works as a public signal in an organisation where an employee has no other occasion on which what they have contributed over the years is mentioned. Its value is that it happens on a known date and does not depend on anyone remembering.
• It works to even out treatment between departments. Whatever is left to each manager’s discretion happens in one department and not in another; an announced milestone applies to everyone without anyone having to intervene.
• It does not remedy high turnover. People who leave in their first year never reach the milestone, and people who do reach it stayed five years for other reasons.
• It does not replace a pay review. A sum paid once every five years does not fix an existing gap in monthly pay; that is a matter of reviewing pay against the salary structure.

We found no figures, in the sources we reviewed, for the effect of milestone awards on retention, and nothing that would support recommending a suitable amount, a number of milestones, or where they should fall in years of service.

The form of the award, and what the choice brings with it

It can be given in cash or in some other form, and the choice is not a detail of presentation:

• Cash has the clearest value and is the easiest to administer, and it is also the fastest to merge into ordinary income, so that it is forgotten within a month.
• Something chosen from a list leaves the employee with a visible reminder. It costs more to administer and needs a list that suits different people.
• Extra days of leave are tied to rules that have their own place, and the definition of the award settles nothing about those rules; how the statutory leave entitlement accrues is covered in the guide to the annual leave balance.
• Recognition that is said rather than paid, such as a mention at a general meeting or a message from a senior decision maker. It is the cheapest, and its effect depends on being specific to the person rather than one text reused with the name changed.

We do not recommend a form, and whatever rules attach to each form, cash or otherwise, are a matter for the competent authority and its own documents rather than something the definition of the award decides.

Whatever the form, what keeps the effect alive is naming the reason: how long, in which role, and what the organisation went through during that time. The same principle holds for spot awards: a sum with no stated reason is forgotten, and a stated reason is remembered even when the sum is small.

Where it sits in relation to the wage

This is an announced tool that recurs by design, and that very feature is what makes the question of whether it forms part of the wage unavoidable rather than optional. The internal name does not settle the question. The answer comes from the employment contract, from the organisation’s work regulation (لائحة تنظيم العمل) and from the way the award has actually been paid over time, not from how it is described in the letter granting it.

The award is not end-of-service benefits, part of them or a substitute for them. End-of-service benefits have their own provisions and rules; a milestone award is an internal arrangement the organisation chooses and writes down. Mixing the two names inside an organisation creates a misunderstanding in the employee’s mind that cannot be repaired after the fact.

We found no provision, in the sources we reviewed, requiring employers in Saudi Arabia to offer milestone awards or setting their milestones or amounts. They are an optional management practice governed by the organisation’s own documents, and what is described above is practice, not a rendering of any text. None of this is legal advice.

What spoils it

• An award given without its reason. A sum added to salary with no explanation reads as a raise and is then forgotten, losing the purpose it was created for.
• Distant milestones in a young organisation. An organisation three years old whose first milestone falls at ten years announces a tool nobody will reach for years.
• Exceptions by discretion. Withholding the sum from an employee who reached the milestone because of weak performance turns the tool from an announced entitlement into a decision made case by case, and strips away what it was built on. If performance is what is wanted, it belongs in variable pay with its own written rule, not in this tool.
• Judging it by the turnover rate. Turnover is driven by pay, career paths, managers and the state of the market, and this tool’s share of it cannot be isolated. Crediting it with an improvement credits it with what it does not control, and blaming it for a decline does the same.
• Announcing it and then suspending it in a tight year. A suspension is read as going back on what was announced, and its effect on those who remain is larger than the money saved.

What the policy should say before the first payment

Four items are written once and spare the organisation from improvising in each case: the milestones and their amounts; what counts towards service and what does not; when payment is made after the milestone is reached; and what happens if the relationship ends before a milestone is reached. The second raises the most questions, because service can be interrupted in different ways, and each kind of interruption has its own rules where it belongs.

How periods of service are counted and joined together has its own sources, and the definition of the award settles nothing about it and carries none of it over. What concerns the award is that the organisation says in its policy which periods it counts for its own purposes, and says so before anyone asks.

Related terms

• Affective Commitment
• End-of-Service Benefits (EOSB)
• Salary Structure
• Payroll Accounting
• Employee Benefits Accounting