Bonuses Are the New Raises
blogs.wsj.com
blogs.wsj.com
If we're talking realistically, there is no "new raise", and the majority of workers (especially hourly workers) don't get substantial bonuses whatsoever. There's yearly wages losing out to inflation and higher cost of living, and a stagnation in wage increases that has gone on for 30 years, on the broad view of things.
The article also mentions an "economic recovery" while failing to mention that labor engagement as a percentage of the population is at a 30 year low even when controlling for demographic factors. It's as though the author is living in a fantasy land where only positive information is taken into account when drafting an article.
My budgeting has to be based on my salary, not my bonus, and my monthly budget defines my standard of living. What I can spend on housing, food, and entertainment depends on salary, as does how much I can expect to put in savings every month.
Over the long term, sure, bonuses can contribute to that baseline. They can go into discretionary expenses like vacations, home improvements, new furniture and gadgets, and they can help bolster savings and investments. But depending on bonuses when making long-term financial commitments is more of a risk than I'm willing to make.
And don't even get me started on equity/stock options/etc. That stuff is usually granted in terms that are heavily weighted toward the employer's benefit. Work should be compensated with money, not investment opportunities.
The caveat I'd add to your first point is... bonuses for me have been an important part of accelerating savings and retirement. I personally do not define my financial success by my month-to-month standard of living but rather by my net worth. And in those terms, a bonus dollars spends the same.
Of course, though, that in the hypothetical case you were offered $10,000 raise or $10,000 bonus, certainly the raise is better. But that's a strawman. A more interesting analysis would be where is the line drawn? Is a 5k raise better than a 10k bonus? I'd probably take the bonus in that case, honestly, because time value of money and all. So where is the line drawn?
As far as 10k bonus vs. 5k raise, sure: if you're being offered 10k now versus 5k over the next year, and you expect to receive another 10k next year in lieu of the same 5k, then you're coming out ahead. But the case I'm talking about is when you're getting a compensation offer including a bonus, in which case you're choosing between 5k over the next year versus 10k in a year (maybe).
A signing bonus of some sort, where you're receiving an immediate guaranteed payoff (or even a guaranteed payoff at some point in the future), is a completely different beast than a performance bonus as part of a compensation package.
Also, words are wind, and your employer can claim as much as he likes that your bonus is a super-duper-sure thing, but unlike an actual salary, it can be revoked instantly for no reason, and you have no legal recourse.
In my experience taking the bonus always makes more financial sense.
"No!" you shout in horror, "you're leaving money on the table because salaries compound and bonuses don't!"
Ah, but there's the thing: 10b is surely < 10n, but 3b is almost always > 3n. So while you're getting +n a year, I'm now making $[1.10 ... 1.25]*x/yr because I worked for 2-3 years and then found a new job.
Employers switching to bonuses gives a strong incentive for employees to try to secure raises by quitting (or threatening to quit). This strikes me as ridiculously counterproductive, but hey, that's how it seems to work, so you might as well ride the wave!
There are two cases where this isn't an issue: when the bonus is literally guaranteed (which tends only to be true of signing bonuses), or when the bonus is contingent on objective criteria you control, such as completing a particular project, or selling a certain number of accounts.
Otherwise, a bonus is based on some combination of company performance (which is probably out of your control) and management whim. If management expects to issue the bonus every year, there's no rational cause to offer a larger bonus rather than a salary increase.
In the UK, by changing jobs a few times, I managed to get from £14k to £46k in 4 years :-)
1. working every hour of every day to be the best I could be and proving it on a daily basis.
2. Don't move job without taking a big raise. Play offers off against each other
3. Circulate amongst old fashioned corporates. It's easier to look good there as most of the staff are crap.
Looking for jobs, going to interviews, negotiating, it takes time and energy.
I work for Google, and a significant chunk of my comp is in stock. I was awarded an additional $N of stock over four years this year, and I just considered it a raise of $N/4.
Update: it also means you can stay at the job all year for the bonus/stock and then get laid off right before the end of the year. It's deplorable.
That said, like earlier posters I can only budget around my base salary. I would of course prefer that "guaranteed" bonuses come in the form of base comp paid every check. If you want to incentivize me to create shareholder value and stick around; offer a generous ESPP.
So... if you're playing it conservatively, you can just sell the shares on the day that they are granted to you, thus realizing a guaranteed 15% increase on whatever percentage of your salary you can put in the program.
There is some risk that if the company goes bankrupt, you could lose the amount invested. But I'd guess that ESPP programs are pretty senior in the debt pool, and generally management doesn't want to piss off its employees any more then absolutely necessary during a bankruptcy proceeding.
I agree with you that your example is a lot more similar to an $n/4 raise. It's kind of like a "resolution" of your pay. Ideally you get paid every day for the work you did that day. $N/4 reduces the resolution to every quarter. My example above reduces the resolution to every 4 years. Each one increases the length of time you're going to keep someone working for you that otherwise wouldn't be.
As another reply mentioned, this can be a good thing. Keep around a talented person who you really need. My bet is that more often you're keeping around a talented person who isn't giving >100% (a passionate person will), and is probably poisonous to team morale too.
Perhaps, but an 85% effort from a known talented person may be better than trying to find someone who may not exist that will give you more.
> and is probably poisonous to team morale too.
Possibly, but high turnover can be poisonous as well. Plus, some problems just don't attract passionate people in the first place.
See this every day in a large Investment Bank. Bonus chasing bastards do not protect or grow the brand, they just ensure short term decisions remain the order of the day.
There are people I know who just struggle through to stick around till that pay day, particularly when the winter days are long and painful to get through at work.
That works for retention for a certain mind-set.
For someone like me, my last job triggered the right impulses.
By having quarterly review cycles - keeps you on your toes (with the extra management overhead of going through the reviews/budgets etc).
Someone around you was getting a raise every quarter - next time it could be you ... just buckle down for 3 months.
Plus they gave promotions in role 3 months before the raise.
??? Winter's the best time to be employed, at least in moderate climates. It's freezing outside, and inside there's the glow of a warm terminal.
Summer's when I can barely keep myself working. You can actually get outside and enjoy life.
In any case, the book is worth a read. I had a copy forced on me years and didn't crack it open for ages - I wish I'd started reading it sooner.
Let's assume I want to build a real-world helicopter. I don't work in that industry, nevertheless, I earn something reasonable, and I am happy with it. Money may not be a prime motivator for my everyday job, but any 'above-the-minimum-happiness' money contributes to my long-term plan of building a real-world helicopter. And having such a long-term goal, in addition with the money that helps me to achieve that will increase my happiness way more than I've had been just with the job and less money.
Having more money without a goal is not a motivator. Getting more money to achieve an already established goal is.
1) It's incredibly hard to set goals for complex projects without having unforeseen problems or side-effects (e.g. the product shipped on time, but it's buggy)
2) Experiments have consistently shown that creativity is negatively impacted by incentives (possibly due to stress causing narrowed focus)
That I am passionate about something does not imply I ought to be compensated less for it than I otherwise might be and, no, providing a space merely for me to do what I like is not "compensation." Employers love that there are so many people for whom "money is a poor motivator." It assists them in keeping the imbalance that exists stable (or growing).
Also, that paradox really only applies broadly to a very special kind of person, and generally only to people who are in professions for which a substantial minimum income is the general rule. I also suspect it's only true for a certain range (e.g. an additional 5-15% might not be of interest, but start talking about 20% or more of an increase and that gets to be another discussion altogether).
I did take a pay cut for a while to work at a startup, but that was a choice I made based on the expectation that once the financial situation changed the founders would do right by me (and it did, and they did).