
Employers Choose Bonuses Over Raises - JumpCrisscross
https://www.wsj.com/articles/benefit-gains-exceed-wage-growth-new-labor-data-shows-1537289455
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newscracker
I wonder if there's a need to read the entire article, because anyone who
thinks a little bit about continuous costs and one off costs will arrive at
the same conclusion as mentioned in the first paragraph:

> a move that gives them more flexibility to dial back that compensation if
> the economy turns sour.

To add further, though salary cuts can be done by companies (this may vary
across geographies), it's usually a little more cumbersome and also sends a
different message to employees. It's a lot easier to put in vacation caps
(thus chopping off the ability to use the provided compensation completely) or
not pay a bonus. While bad for morale, at least some employees may not
consider these moves as a loss from the status quo. That's why different kinds
of variable pay schemes is very attractive for employers so that they have
several knobs to control.

As far as I'm concerned, employees should consider their base salary, benefits
and some expected bonus as their fixed compensation so that they can better
understand if the company is just skimming money and not rewarding their work
because top executives want the bonuses for themselves (even when the
situation looks like it wouldn't hurt to give some additional compensation).
This behavior is quite common in many companies, and is probably one of the
reasons why the CEO to average employee compensation has become increasingly
skewed over time and is getting worse.

On the other hand, given a choice, most employees would choose a salary
increase (continuous increase) over an unpredictable and one off bonus or any
other benefit that can be easily cut.

~~~
dunpeal
> To add further, though salary cuts can be done by companies (this may vary
> across geographies), it's usually a little more cumbersome and also sends a
> different message to employees.

It's a lot more cumbersome, and will create a lot more friction and problems.

The key reason there's even a distinction between salary and bonus is that a
salary is guaranteed as long as you work there, while the bonus is not.

~~~
rootusrootus
OTOH, when the bonus has been paid out reliably for years, then the
distinction gets pretty blurry. My company just cut bonuses this year for the
first time in memory, by almost 40%. In the last two weeks we have had a half
dozen new resignations _per day_. The company is profitable, they just set a
target for year-over-year revenue gain that has not ever been met in the
company's history, so that they'd have an excuse to pay less. And now
everyone's pissed and the best folks are walking.

I am pretty sure it was deliberate, a way of cutting way back without having
to give severance or make the news.

~~~
fma
I'm in the same boat. We have measurements and the bar gets moved every year.
Now we are at 150% profitability compared 2 years...and the bonus were nice.
Now to get our regular size bonus we need to keep it up. In other words, the
company makes more money than before, and pays less bonus.

~~~
maxxxxx
Your CEO has a nice boat on order. The money has to come from somewhere :-)

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arnvald
Besides flexibility for the employer, there's one more reason why they prefer
bonuses over salary raise: if you leave the company in the middle of the year,
you don't get half of the bonus, you get nothing.

I understand employer's perspective here: they don't know how well the company
will perform, you can't predict everything. So bonuses are a good way to say
"if we achieve our goal, you will get part of it as a reward".

However, very often recruiters include the bonus as part of annual salary when
presenting the offer. This is unfair to the candidate - since bonus is not
guaranteed, it shouldn't be included in the annual compensation, it should
always remain separate with a clear information about conditions under which
the bonus will or won't be granted.

~~~
jknz
This may be a short-sighted policy for the employer.

Once-in-a-year bonuses give very little incentive to produce efficient work
day-to-day. Because bonuses are given far in the future, employees have little
to no rapid feedback on their work; and being far in the future some employees
simply forget about them (or believe they might change jobs before bonuses are
given so why work hard anyway).

Giving weekly or monthly bonus would give a rapid a powerful feedback to
employees; and bonuses would be much connected to actual work than the
corporate politics that happen just before the yearly bonus.

Another thing that employers risk with this policy is employees leaving en-
masse as soon as the bonus is given. Some consulting/audit companies give
bonus after the summer, just before their busy season starts; and employers
learn the hard way that giving the bonus as late as possible is not as smart
as it first sounded.

~~~
JackFr
It's not short sighted.

In finance it used to be the norm and is largely moving back that way.

Using it as a lever for employee performance is a secondary effect (that can
be done just as effectively with salary). Primarily it allows the firm to
manage comp costs to be in line with the firm's performance. During a downturn
it allows you to cut comp by like 25% without reducing headcount. The
possibility of employees leaving en masse is certainly considered but it's not
very common.

~~~
jknz
I should have added that it only applies to some companies.

Finance is a special case because if a lot of traders leave at the same time,
the ones who stay will have more capital to play with.

Consulting/contracting/auditing firms are very different: they are committed
to specific projects for specific clients and have already negotiated the
fees. So it's real trouble if employees leave all at once--you cannot simply
move their projects/clients to the employees who stay (because it creates even
more overworked employees who will leave asap after the next bonus).

Also these projects may be much shorter than a year, some audit works are done
within one-two weeks. If the firm negotiated a 2 weeks project for $XX fees
and the employees on that project manage to finish the project for far less
resources, the firm knows that they made a huge profit on that project. The
firm may give these employees an instant bonus so that the employees are
incentivised to reiterate the performance for the next project.

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ChuckMcM
I have a mixed opinion on bonuses.

On the one hand as engineers get more senior it becomes more possible for them
to 'move the needle' in the parlance and do something really impactful for the
company. Its also possible that they might do something really great one year
and nothing notable for the next four years. So bonuses allow you to reward
for work done "above an beyond" without a long term salary expense hit that
might not be as justified in later years. So in that regard I think making
more of the pay variable as you get more senior makes a lot of sense.

But then bonuses can also be used as tools by managers to foster unhealthy
behavior. When they are a 'beauty contest' (basically people who the manager
likes get good bonuses unrelated to their contribution) then they are
demoralizing to the group and promote sycophantic behavior over outstanding
technical contribution.

When I was at Google they tried to have their cake and eat it too, on the one
hand they said your bonus was all algorithmic (personal multiplier, company
multiplier, salary) but they refused to tell you what your personal multiplier
was. So your manager could give you a really happy sounding review and a
personal multiplier of .1 or something and you had no way of knowing if what
you did was really useful or if they were just blowing smoke. It was pretty
clear that management reverted to what managers do, which is lean the rewards
toward people that supported their agenda and away from people who didn't,
regardless of "impact" (positive or negative!) to the company.

Bonus plans that work are ones where you establish clear measurable goals for
the year which can be objectively adjudicated. If you make all the goals you
get the full promised bonus, you make a fraction of them, you get the prorated
bonus. Weak managers will push back on those because they don't have the tools
to evaluate the difficulty of the goals. Something I suggested at Google could
be peer reviewed (they still didn't like it).

I don't have any magic bullets here, having experienced no less than six
differently structured bonus programs they all seemed to leave some folks
feeling they were treated unfairly.

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olliej
Presumably a raise brings a long term cost as it’s much harder to lower
someone’s wage than to not give them a bonus.

Similarly I suspect people take a bonus of X amount more happily than a raise
that would work out to the same amount (like credit purchases talking about
monthly costs making a purchase seem cheaper, even when you end up paying
more). Of course it’s possible a lump sum all at once has more intrinsic
“value” to the recipient (eg getting a bonus right now vs more money spread
over the next year)

~~~
maxxxxx
"Similarly I suspect people take a bonus of X amount more happily than a raise
that would work out to the same amount ”

I think most people know that a bonus is a much worse deal for most people who
aren't VP and above level. A salary increase locks you in for the next year
but the bonus can be taken away.

~~~
olliej
Yeah, I’m not so sure - basically imagine you’re an low/minimum wage worker.
You (and millions who are earning more than the anemic us minimum wage) are
fundamentally trapped in a paycheck to paycheck existence. A few hundred
dollars right now could actually be worth more than an equivalent pay rise,
because you don’t have to wait an entire year to have recovered it. That money
you could use to immediately pay down debt, and you’re low income so you
credit interest will be higher than the rich.

Don’t get me wrong: I know that in general a bonus is probably cheaper than an
actual wage increase for the company, but there’s a fairly large group where
it can legitimately be worth more to someone.

(Please no one respond with “poor people waste the bonus” it’s not helpful and
also largely not true)

~~~
maxxxxx
That sounds a little like the logic behind payday lending. Get some money now
but pay a huge price later. I am sure plenty of people are in that position
but it's certainly not a good thing.

~~~
olliej
Payday lenders can charge excessive interest rates, or “fees” (worded however
necessary to make it “legal”) because they know the people getting them have
no choice.

If you need your car to get to your job, then if it needs immediate repairs
you have no choice but to get the money for a mechanic immediately.

If you’re on a low or minimum wage there is not any kind of safety buffer for
you, and banks won’t lend to you (collectively low income people are higher
risk of default so it’s easiest for banks to just say no than do it case by
case).

The problem is that once you have needed a payday loan once, you’re trapped:
if you’re living paycheck to paycheck, then once they take their cut you don’t
have enough money to pay the rent, so you need a loan ...

And so from a single loan they now have a permanent source of income, and it’s
a higher interest rate than any other (10-20% per week is “reasonable”)

In principle I don’t have a problem with the concept of a payday loan (it’s
essentially a secured credit), but something about that industry drives them
to fee gouge and ruin people’s lives.

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no-such-address
Is this actually a surprise to anyone? Year 1: here's an extra x% of your
salary! Aren't you happy! Year 2: here's the same x%! Aren't you just as
happy.

Compare this with getting a raise.

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throwaway9292
It can be extremely hard to predict revenue. We've made exactly this choice so
that we can dial back compensation if revenue goes down, hopefully without
sending the wrong message.

~~~
anigbrowl
I guess the wrong message here would be 'our business plan isn't very robust.'

~~~
thedufer
Smoothing volatility is expensive in some businesses. Plenty of rational
people would prefer $90 this year and $120 next year over a consistent $100
each year.

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SomewhatLikely
A raise has added value also in that base salary seems to go further when
negotiating your next jump. Of course, this also motivates the employer to
give bonuses vs raises.

~~~
analog31
I've thought about this, and wondered if I should just show my W-2 if asked
about my current salary in a negotiation. It doesn't differentiate between
salary and bonus. I would have no problem stating outright that I don't care
how they pay me, so long as it's a hard offer and adds up to the right amount.

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k__
When I read about such behavior, I'm happy not being employed anymore...

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circadiam
paywall bypass: [https://outline.com/JzU3Zu](https://outline.com/JzU3Zu)

~~~
gok
That’s a different article

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tejasmanohar
Sometimes, I wonder what percent of the people who upvote these links actually
read them. I hit my free limit on WSJ opening HN links and can't read this.

~~~
freddie_mercury
You must be new to the internet :)

But, yes, it would a better world if people read links before
upvoting/downvoting/commenting.

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exabrial
Given how badly the Democrats oppose anything Trump signs off on, this is a
smart bet. It's sad we can't look past party lines on good things like this

~~~
maxxxxx
Can you be a little more specific?

