Year-end cash bonus? Not so likely

SAN FRANCISCO - At U.S. workplaces, the holidays just aren't what they used to be. Companies are scaling back on holiday parties, if they're having one at all, and the annual holiday bonus - a Christmas tradition for some workers - is no longer so traditional.

Just 24 percent of companies will give their workers a holiday bonus this year, down from 42 percent a year ago and a record low in the annual survey of about 300 firms by Hewitt Associates, a global human-resources consulting company.

Keep in mind: These aren't the types of bonuses making headline news lately - those multi-thousand-dollar payouts that bankers are increasingly sharing with the tax man or not receiving at all.

Those big-ticket bonuses are, in human-resources language, "pay for performance." That is, if the employees meet or exceed expectations, they get a bonus. And if the company isn't doing well, that bonus isn't necessarily doled out.

Unlike pay for performance, the traditional holiday bonuses discussed in the current Hewitt survey tend to be a lot smaller - this year, the median amount is $250 - and handed out to all employees, top performer or not.

"These are bonuses that, basically, magically fall out of the air at the end of the year based on an employer's desire to say thank you, or to try to increase morale," said Ken Abosch, head of Hewitt's North American compensation practice.

"Many of the Wall Street bonuses would probably fall into the formal 'pay for performance' realm because there would have been some goals or expectations set at the beginning of the year and the payouts would have some relationship to those goals at the end of the year," Abosch said.

"You could speculate as to whether or not the dynamics of those bonuses make sense or not but most of them are structured plans," he said. "Ten, 15 years ago, Wall Street did participate more in these holiday bonuses and there were lavish, end-of-the-year parties and cash awards and trips that were given out. Those have really kind of died."

And the holiday party? It's less likely too. In Hewitt's survey, 60 percent of companies across a variety of industries said they'll host a holiday party, down from 71 percent in 2008. Of those who plan to have a party, they plan to spend a median amount of $15,000, down from $19,000 a year ago.

The economic downturn is one reason for the drop in traditional holiday bonuses, but there's another reason, Abosch said. Employers don't like "the lack of linkage between performance and payout," he said. "Companies are saying what they've created are entitlement plans and they don't feel they're getting a good return on their investment."

Meanwhile, "employees like getting them but they very often don't understand what they did to deserve it and what to do to get one again next year," Abosch said.

Despite the negative associations-President Obama decried "fat cat bankers" in a recent television interview-the more infamous type of bonus is becoming increasingly popular at U.S. firms. See related story on Obama pressuring banks to lend more.

Employers are "shifting what they would have spent on a holiday bonus to a more structured variable-pay plan," Abosch said.

This year, 85 percent of firms said they have a formal "pay for performance" program, up from 74 percent a year ago, he said. Of those firms, 72 percent said "variable pay" - read: bonuses - are included as part of that program.

Companies' outlays on variable pay as a percentage of payroll for salaried exempt workers is expected to be 11.2 percent in 2010, almost doubling from 6.4 percent in 1994, according to a Hewitt survey of 555 large employers in November. And those types of bonuses for nonunion hourly and union employees are projected to be 6.5 percent and 6 percent of payroll, respectively. (Hewitt counts executive bonuses only to the extent executives are eligible for all-employee bonuses; most executive bonuses are not counted here.)

And more workers are eligible to participate in such programs: The average salary this year is about $28,000, down from $30,000 last year, Abosch said.

Still, not all workers even know they're participating. "One of the unfortunate things we see is that there are companies who have a structured variable-pay approach but for whatever reason have chosen not to communicate it effectively to employees. That doesn't turn that program into a holiday bonus although it might feel that way to employees," Abosch said.

"The highest-performing companies are the ones that do the best job of setting expectations upfront and communicating progress throughout the year so that employees can make course corrections along the way," he said, citing Hewitt's 10-year analysis comparing the highest- and lowest-performing companies on total shareholder return. "The single strongest difference was how they communicated."

Separately, a recent survey by outplacement firm Challenger, Gray & Christmas Inc. found 64 percent of employers plan to hand out bonus checks this holiday season, up from 54 percent a year ago. (The Challenger survey doesn't separate the bonus types - traditional holiday versus pay-for-performance - in the same way as Hewitt.)

Of those awarding bonuses, 63 percent of firms are basing them on performance, according to Challenger's survey of about 100 human-resource executives.

(c) 2009, MarketWatch.com Inc.

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