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Employees Have High Hopes for Bonuses This Year

Performance-based payouts may disappoint some workers

A man is holding money in an envelope.

Most employees expect to receive larger bonuses this year for their hard work than they received last year, and, if they don't, they're likely to be disappointed.

According to a new survey by HR consultancy Korn Ferry, around 83 percent of employees surveyed said they expect to receive a bonus this year for work performed in 2018. This is in line with the percentage who said they received a bonus last year for their work in 2017.

Just over half (51 percent), however, expect that the bonus they'll receive—typically awarded in the first quarter—will be bigger than last year's bonus.

In December, Korn Ferry surveyed 756 salaried and professional-level employees about bonuses at their organizations. The findings are presented in the infographic below.

Released Dec. 5 by the business research and advisory firm Gartner, the Global Talent Monitor report for the third quarter of 2018 also showed that workers now anticipate larger increases than last year's for 2019 salaries and bonuses based on their 2018 job performance.

Employees' base-pay expectations jumped nearly a full percentage point from the previous quarter, with workers expecting a wage increase of 3.9 percent in 2019 and bonus and merit payouts 3.8 percent larger than they received a year ago.

The Global Talent Monitor's data are drawn from the larger Gartner Global Labor Market survey, for which some 22,000 employees were interviewed.

"Given strong economic performance across many U.S. industries in 2018, employees hold much higher expectations for greater increases in wages and bonuses going into 2019," said Brian Kropp, group vice president of Gartner's HR practice. As companies revisit compensation planning for the new year, "executives will need to factor in these employee expectations to remain competitive and to attract and retain talent, otherwise they risk losing their best workers to competitors."

[SHRM members-only toolkit: Designing and Managing Incentive Compensation Programs]

Bonus Budgets Already Set

Companies' budgets for 2019 bonus payouts may have been finalized months ago when the continued strength of the economy through year-end was uncertain. A midyear 2018 survey of 814 companies by HR consultancy Willis Towers Watson showed that employers were projecting that discretionary bonuses paid in 2019, generally for special projects or one-time achievements, would be slightly larger than companies budgeted for in 2018, averaging as a percent of salary:

  • 3.9 percent for nonexempt hourly employees, unchanged from 2018.
  • 5.9 percent for exempt nonmanagement employees, up from 5.7 percent.
  • 9.3 percent for managers, up from 9 percent.
  • 21.3 percent for executives, down from 21.9 percent.

However, annual performance bonuses tied to company and employee performance goals under a variable pay plan were budgeted to hold steady or decline slightly in 2019 for most employee groups. The budgets for these short-term incentive/bonus payouts were expected to average as a percent of salary:

  • 5.7 percent for nonexempt hourly employees, down from 5.8 percent paid in 2018.
  • 11.7 percent for exempt nonmanagement employees, unchanged from 2018.
  • 21.3 percent for managers, down from 22 percent.
  • 43.8 percent for executives, down from 44.6 percent.

In light of strong economic performance through the end of 2018, companies that are able to do so may want to consider being more generous with their payouts.

In any event, for variable pay plans that use performance-target ranges, incentives should trend at or above target levels at many companies, raising bonus sizes for top performers.

"Earnings growth in 2018 is up—dramatically—compared to 2017 in most sectors of the economy. As such, there's a real chance annual incentive payouts that will be made in Q1 2019 (for 2018) will trend above prior year payouts," noted Steve Kline, senior director for executive compensation at Willis Towers Watson, in an e-mail. 

"Organizations are facing increased pressure … to devise a focused strategy and plan on how to allocate their precious compensation dollars or risk losing some of their best talent," said Sandra McLellan, North America rewards business leader at Willis Towers Watson.

Managing Expectations

"Bonuses can be purely discretionary, after-the-fact payments that are made as funds are available, or they can be used as incentives that establish the relationship between performance metrics achieved and the degree of payout," said Tom McMullen, a Chicago-based senior partner at Korn Ferry.

While some companies may have unbudgeted funds available to enrich bonuses paid for 2018 performance, others don't.

Under incentive arrangements such as a variable pay plan, however, "employees should be less surprised about these payouts," McMullen pointed out. If they are surprised, he added, the organization probably needs to do a better job of the following:

  • Communicating about individual and team performance throughout the year.
  • Ensuring that employees understand how the program works by clearly stating what they have to achieve in order to earn incentive payouts or bonuses.

Train leaders and managers so they're prepared "to deliver the truth about reward outcomes in an authentic manner," focusing on what employees can improve to ensure better bonuses are delivered the following year, advised Catherine Hartmann, North America rewards practice leader at Willis Towers Watson."

Employers can also assure employees that strong business performance throughout 2019 will be reflected in bigger bonuses next year. However, looking ahead to 2019 (and bonuses that would be paid in early 2020), Kline said, “the current thinking is that the economy will soften somewhat.”

Beyond bonuses, "companies can use other levers within their total rewards program to motivate and retain employees," Hartmann noted. "This means providing enhanced benefits, such as parental leave, eldercare and tuition assistance, and career-oriented programs, such as formal mentorship and rotational assignments, that focus on where employees are in their life and career cycle."

Related SHRM Articles:

Keeping Compensation Fresh in 2019, SHRM Online, January 2019

2018 Was a Super Year for Job Growth. When Will Demand Slow?, SHRM Online, January 2019

U.S. Adds Whopping 312K Jobs in December, SHRM Online, January 2019


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