The real reasons why bonuses are shrinking

For the first time in seven years, employer spending on bonuses has declined

By Bloomberg News

Sep 22, 2017 @ 11:29 am EST

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It's hard enough to get a decent raise these days. Now, even the prize employers turned to instead is in danger — largely, they say, thanks to President Donald Trump, Congress and hurricanes.

The one bright spot in compensation in recent years has been the rise of the bonus. But this year, for the first time in seven years, employer spending on bonuses declined, slipping a tenth of a percentage point to 12.7 percent of total compensation, Aon Hewitt found in its annual survey of over 1,000 employers. "It's not a dramatic change, but it is counterintuitive," said Ken Abosch, who heads compensation at Aon Hewitt.

"What's even more surprising and alarming is that organizations are pulling back their projected spending in 2018," he added. Companies expect to spend 12.5 percent of total compensation on bonuses next year, the survey found.

Despite the strength of the economy, a tight job market and strong corporate performance, employers have resisted raising wages out of fear of increasing their fixed costs. Those surveyed said they had given out, on average, 2.9 percent raises this year and expect to give around the same next year. The specter of a recession, or even just a bad year, has kept salary increases at that level for the last five years. "There's just not any appetite to budge on salary spending," said Abosch.

In that kind of climate, the bonus is a much more alluring way to reward workers: It's not permanent, so companies can choose to hand out bonuses during boom times or withhold them when budgets tighten. Workers who rely on their regular earnings to pay the bills would be justifiably angered by wage cuts, but they may not expect to get a bonus every year.

This year, however, companies are skittish on bonuses, too. Their budgets aren't tight, but they fear an economic downturn is on the horizon — and specifically, those surveyed said, that greater government spending on defense, infrastructure and hurricane relief could boost inflation and hurt corporate profits. "Organizations are expressing concerns about how all of that is going to get paid for," said Abosch.There's something else giving employers pause on bonuses, too: "The accomplishments, or lack thereof, in terms of congressional results this year, and just some uncertainty about leadership in general out of Washington," Abosch said. Congress has passed a $700 billion defense funding bill and $15 billion in hurricane relief, but the passage of tax reform and health care legislation, two Republican priorities that would have a major impact on employers, is far from assured.

The employers surveyed didn't expect the uncertainty to last this long, said Abosch. "Everyone hears what the agenda is supposed to be, but there are concerns about whether the results will materialize."

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