More Holiday Bonuses Are Tied to Performance

By Stephen Miller Dec 16, 2009
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As the economy struggles to crawl out of the worst recession in decades, many companies remain focused on containing costs. Still, new surveys show that despite continued economic worries, many U.S. employers planned to hand out holiday bonus checks at the end of 2009, although more are directly tying year-end bonuses to individual and organizational performance.

A survey of approximately 100 HR executives conducted in November 2009 by global outplacement consultancy Challenger, Gray & Christmas Inc. found that:

  • 64 percent of respondents were awarding holiday bonuses in 2009, a marked improvement over 2008, when 54 percent of companies planned to give bonuses.
  • 8 percent of those polled said their companies were increasing the size of bonus checks. In 2008, none of the companies planning bonuses were giving bigger ones.

While the survey shows an overall increase in the percentage of companies awarding bonuses, it demonstrates the impact that the recession has had on many companies. Sixteen percent of respondents said that, while they awarded bonuses in 2008, they did not plan to do so in 2009. Another 4 percent planned to give smaller bonuses than in 2008.

Holiday Bonuses Return

HR executives were asked, "Does your company plan to give year-end bonuses?”




Yes, and size of the bonus is based on performance.




No, we never give bonuses.




Yes, and bonuses will be about the same as the year before.




No, we awarded bonuses last year but not this year.








Yes, but we plan to decrease the size.




Yes, and we plan to increase the size.




Source: Challenger, Gray & Christmas Inc.

“Companies are not quite ready to ramp up hiring, but they are beginning to see the light at the end of the tunnel,” says John A. Challenger, chief executive officer of Challenger, Gray & Christmas. "While most can probably justify postponing bonuses another year, there are growing concerns that job market improvements in 2010 could bring an exodus of workers. Companies are also sending a message that we appreciate that this has been a tough year for everyone, and that the workers’ part in ensuring continued survival is recognized.”

Many employers are indeed expecting a rapid surge in turnover when the economy improves, according to a survey by consultancy firm Deloitte. The survey found that nearly two-thirds of managers were highly or very highly concerned about losing high-potential talent in the year after the recession ended.

“In addition to layoffs, the recession forced many employers to decrease workers’ hours, institute pay cuts, force employees to take unpaid vacations and halt matching 401(k) contributions,” says Challenger. “While some of these measures have saved jobs, they undoubtedly left many workers disgruntled, frustrated and ready to move on as soon as the market improves. Year-end bonuses may not ensure the loyalty of all unhappy workers, but they could help entice some to stay aboard.”

Something Is Better Than Nothing

About 19 percent of respondents were planning to keep the size of bonus checks the same as in 2008, Challenger's survey found. While the HR executives surveyed did not provide details on the amount of bonus checks, Challenger believes some companies might choose to be creative when it comes to year-end rewards. “In some respects, it truly is the thought that counts,” he remarks. “Employees want to be recognized for their contribution to the company. It doesn’t have to be a Wall Street sized bonus check. Many workers would be happy with a $100 gift certificate to a local restaurant or store. Many would probably be happy with a couple of extra days of paid vacation at the end of the year. Many are simply happy to have a job in this economy.”

Of course, he notes, “Those who are just happy to have a job are usually the first ones seeking greener pastures at the first sign of improvement. Companies understand this and it is why nearly two-thirds of them are finding a way to give bonuses this year.”


Most companies are tying the size of year-end bonus checks to the performance of the company and/or individual. According to Challenger's survey, 63 percent of those awarding holiday bonuses are basing them on performance.

Hewitt, an HR consultancy, similarly found that holiday bonuses are being replaced by variable pay programs, which have increasingly emerged as the primary pay for performance vehicle for employers and make up a greater portion of an employee’s overall compensation package.

According to Hewitt research, average employer spending on variable pay as a percent of payroll has steadily increased over the past decade, from 9.7 percent in 2000 to 11.2 percent in 2010. On the other hand, average pay raises have been steadily decreasing. In 2000, average salary increases were 4.3 percent compared to just 1.8 percent, in 2009.

“Holiday bonuses have been falling out of favor in recent years as companies face increased pressure to reduce costs and are more focused on growth and performance,” says Ken Abosch, head of Hewitt’s North American broad-based compensation consulting practice. “Instead of giving arbitrary, across-the-board bonuses, employers want to find ways to appropriately reward their highest performing employees. And they are doing this by reserving more of their compensation budgets for bonuses that are based on performance and must be re-earned each year.”

Another View on Holiday Bonuses
Hewitt’s annual Holiday Bonus survey of more than 300 large and mid-sized U.S. companies shows that less than a quarter (24 percent) were offering holiday bonuses in 2009, down significantly from 42 percent in 2008. Of those giving bonuses:

  • Nearly half (49 percent) will give cash, spending a median of $250 per employee.
  • 39 percent will give gift cards, with a median value of $35 per employee.
  • 22 percent will give food (e.g., turkey or ham).

Stephen Milleris an online editor/manager for SHRM.

Related Articles:

Fewer U.S. Companies Having Holiday Parties, SHRM Online Benefits Discipline, November 2009

More Companies Plan to Unfreeze Salaries, Restore 401(k) Matches, SHRM Online Compensation Discipline, November 2009

Dwindling Popularity of the Annual Holiday Bonus, SHRM Online Compensation Discipline, December 2007

Holiday Toolkit, SHRM Tools and Templates

Quick Links:

SHRM Online Compensation Discipline

SHRM Salary Survey Directory

SHRM Compensation Data Center

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