It’s hard for me to talk about bonuses without thinking of Clark Griswold getting a membership to the Jelly of the Month Club in Christmas Vacation. As Eddie said, “Clark, that’s the gift that keeps on giving throughout the entire year.”
Bonuses have gone through an evolution. Company-wide, “thanks for being here” Christmas bonuses were the standard when my parents worked. Over time, those went away, and individual bonuses increased, but only for select executive roles and salespeople.
However, since the great recession, companies have been leveraging one-time bonuses more. As a manager, I am okay with this, as long as there is clear line of sight from performance to bonus. Bonuses also only work if there is differentiation—Susie did better than John so Susie gets paid. Perfectly Pavlovian.
The NY Times had some great info on how bonuses are evolving. Check some sections and my reactions.
Aon Hewitt did not even start tracking short-term rewards and bonuses — known as variable compensation — until 1988, when they accounted for an average of 3.9 percent of payrolls. Ten years later, that share had more than doubled to 8 percent. Last year, it hit a record 12.7 percent. “This is something that has not gotten as much attention in conversation about flat wages,” said Linda Barrington, executive director of the Institute for Compensation Studies in the Industrial and Labor Relations School at Cornell University.
Folks, that’s quite an increase in a relatively short period of time. HR usually moves sluggishly to change comp models. Here are the external reasons why.
Several developments help account for wage stagnation: the economy’s globalized and technological nature, which has placed more bargaining power in the hands of employers, and long periods of relatively high unemployment, compounded by waves of layoffs and excessive numbers of discouraged and underemployed workers, leaving some employees fearful to ask for more.
Okay, that makes sense from a macro perspective. But there’s also a more local factor that is impacting this, and it’s the one that HR pros should monitor.
“It’s really hard to cut wages and salaries, so the more compensation you can give in other forms, the more nimble you can be in a recession.” Some experts expect the trend to continue even as the unemployment rate drops and the labor market tightens… Employers like one-shots precisely because they are temporary. They save money over the long run because they don’t lock in raises, giving managers greater control over budgets, particularly during downturns.
“It’s so much easier to not give a bonus than to cut someone’s pay,” Ms. Barrington said.
Aw man, is that what this comes down to? It’s easier to keep wages flat and then pull the bonus lever or not pull it. It’s the classic problem involving managers and people. Managers don’t like to give direct critical feedback. It makes me wonder if weak managers, unable to make tough decisions about how to split the 3%, prefer bonuses. Does a bonus program allow more wiggle room for weak managers? Hit me in the comments.
I have spent the last 20 years of my professional life advising leaders to make great talent decisions to drive business results. In my current gig, I lead talent acquisition and management for a multi-billion-dollar, 100% employee-owned construction company. I geek out on analytics, succession planning, etc. and love it when we position folks to do their best work. That’s fun stuff. I tease bad HR people, because I think we can all do better, myself included. That’s fun, too.