Why Bonuses Are Replacing Pay Raises
August 13, 2015 | Business and Careers
You know that thrill when you receive an unexpected windfall?
That feeling could soon become a lot more common.
According to an Aon Hewitt survey, companies are increasingly compensating their workers with one-off bonuses, short-term rewards and other surprise perks.
But it’s not all good news: locked-in pay raises are being replaced as a result.
“[This] is a quiet revolution in compensation,” Ken Abosch, a partner at Aon Hewitt, a global human resources company, told the New York Times.
And like many recent money trends, you can blame the economic downturn.
“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,” Linda Barrington, of the Institute for Compensation Studies in the Industrial and Labor Relations School at Cornell University, explained.
In fact, the survey found that the share of payroll budgets devoted solely to salary increases dropped from a high of 10% in 1981 down to a measly 1.8% during the worst of the recession. And while raises are now slowly back on the upswing, they only managed to climb 2.9% in 2014.
On the other hand, bonuses and other short-term payouts accounted for just 3.9% of payroll budgets back in 1988. But by 2014, these perks equaled as much as 12.7%.
Pay-for-performance rewards and signing bonuses make up the bulk of these bonus budgets. But unique, additional perks—like lunch out with the boss or gift cards—are beginning to crop up as well, the New York Times reports.
And it’s no longer just executives high on the corporate ladder that benefit from these bonuses. “It [now] affects the C.E.O. all the way down to the guy who sweeps the factory floor,” Abosch said.
Still, some experts say that employees may be hurt in the long run.
After all, given that future raises build off of previous ones, this could mean far lower earnings down the road. Not to mention that base salaries can be the foundation of other benefits, like Social Security and pensions.
LearnVest, Inc. is owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin.