Here’s Why That Holiday Bonus May Not Be As Good As It Sounds

Just 1 in 4 American workers expects to receive a year-end bonus this holiday season, according to a Bankrate survey. But they may be pleasantly surprised, considering more than half (54 percent) of employers surveyed by CareerBuilder said they plan to give their workers bonuses this year.

At first glance, a year-end bonus may seem like a reason to celebrate. But that’s not always the case, especially when an increasing number of employers are doling out bonuses instead of permanent salary increases for workers, MarketWatch reports.

Salary increases made up 10 percent of companies’ payroll budgets in 1981, according to Aon Hewitt. That percentage dropped to 4 percent in 1995 and this year the percentage dipped even lower. Now, just 3 percent of employers’ payroll budgets are allocated to salary increases.

“Employers have changed their compensation strategies for good, and we shouldn’t expect to see salary increases revert back to 4 percent or higher levels that were commonplace in the past,” Ken Abosch, broad-based compensation practice leader at Aon Hewitt told MarketWatch.

In 1978, just 10 percent of companies doled out year-end cash bonuses to workers, but that number has climbed to 30 percent this year, Bloomberg reports.

Bonuses are far more appealing than pay raises to employers these days, especially post-Great Recession.

“Employers like the fact that it’s not adding to their fixed expenses,” said Abosch [in an interview with Bloomberg]. In case the economy tanks again, companies can forgo bonuses instead of firing workers or slashing salaries. “Organizations find it gives them more flexibility in managing their costs.”

But getting a bonus instead of a pay raise can hurt workers because many things, including some benefits, pensions, retirement, unemployment, and taking out a loan, are based on your salary, and that amount doesn’t include bonuses. Says The New York Times:

While a few more dollars in each paycheck may lack that Christmas-morning feeling, a raise is the gift that keeps on giving. The benefits of wage increases are compounded each year, with every future raise building on the back of the one before it.

Did you get a salary increase or a year-end bonus this year? Which do you prefer? Sound off below or on our Facebook page.