Employers were a little less jolly this past holiday season in their end-of-year bonus packages for employees.
In 2023, year-end bonuses were down between 3.8 percent and 36.2 percent from 2022 depending on industry, and down between 12.3 percent and 36.7 percent compared to 2021, according to data from payroll company Gusto, which analyzed data from more than 300,000 clients.
In December, bonuses paid by firms on Gusto’s platform averaged $2,145, a 21 percent decline from the $2,730 average in December 2022. The 2023 amount is also a 40 percent drop from the $3,583 average bonus handed out in December 2019.
The decline is largely the result of a less competitive labor market, meaning employers are feeling less motivated to give big bonuses or pay increases to woo and keep workers. Meanwhile, employers are also feeling the effects of the persistently high cost of living and are growing more cautious about spending.
“Bonuses have gotten smaller over the last two years,” said Liz Wilke, principal economist at Gusto. “That’s been largely driven by the labor market stabilizing and employers feeling squeezed by inflation. Declining bonuses indicate to us that employers are rethinking their aggressive talent acquisition and retention strategies as they look ahead to the next year.”
In general, the strength of the economy plays into corporate decisions about bonuses, including those awarded during the holiday season, Eric Cormier, manager of HR services with Insperity, an HR services firm headquartered in Kingwood, Texas, told SHRM Online in November. Cormier said that although bonuses continue to be awarded by many organizations and can boost employee morale, some employers refrained from bonuses altogether the past couple of years due to fears of a recession.
Bonuses paid in late 2023 varied widely across industries, Gusto reported. Bonuses in the transportation sector were down a whopping 36 percent from 2022—which Gusto called “a strong indicator of easing conditions in the warehousing and transportation sectors feeling the effect of decreased shipping demand.” Workers in the tourism industry also saw a 36 percent drop in their year-end bonus from 2022 to 2023.
Workers in the technology, automotive and finance sectors, however, were the least affected in terms of shrunken year-end payouts. Tech workers received an average bonus of $4,806—a 3.8 percent drop from 2022.
The share of workers who receive a bonus is also declining. Of the 22 industries surveyed by Gusto, 16 saw declines in the percentage of workers who got a bonus from 2022 to 2023.
Gusto’s report comes on the heels of a survey of 202 firms from career firm Challenger, Gray & Christmas, which similarly found that fewer employees received year-end bonuses in 2023 than in the past couple of years. Roughly 34 percent of employers told the firm last month they were not awarding bonuses to employees—the highest rate of companies not paying bonuses since 2019, when 36 percent of companies opted not to do so.
That survey, though, found that the majority of companies (76 percent) kept the bonus amount flat, while 9 percent said they increased bonuses, up from 4 percent of companies that increased bonuses in 2022.
“As companies enter 2024, they are doing away with the small tokens of appreciation in favor of saving money during a time of perceived economic softness,” said Andrew Challenger, senior vice president at Challenger, Gray & Christmas.
Part of a Bigger Compensation Picture
Bonuses are not the only compensation aspect that is starting to slow.
Employers who offered competitive salary hikes in 2022 and 2023 in light of sky-high inflation and a tight labor market are starting to put the brakes on aggressive salary increases as inflation starts to fall. U.S. employers are planning an overall average salary increase of 4 percent for 2024, down slightly from the actual average increase of 4.4 percent in 2023, according to consulting firm WTW. Meanwhile, Mercer predicted a slightly more modest average salary increase of 3.8 percent and an average merit boost of 3.5 percent in 2024.
Wilke said she expects bonuses in 2024 to remain “roughly the same as or potentially a bit lower” than they were in 2023.
“With continued stabilization in the labor market, talent demand and supply should continue to come more in line with one another,” she said. “While employers still need to ensure proper and fair compensation packages for employees, with quit rates decreasing and job availability becoming slightly more scarce, employers can consider scaling back a bit on bonuses.”