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Companies like Apple have been generating positive headlines this year for giving their employees one-time bonuses, which they are crediting to recent tax cuts (the corporate rate in the U.S. was reduced from 35 per cent to 21 per cent). The problem with that, as the New York Times reports, is that the bonuses are taking the place of actual raises.
This trend started in the 1990s, but really gained traction during the Recession, which we’ve yet to recover from completely, the Times reports.
In 1991, for example, spending on temporary rewards and bonuses for salaried employees, known as variable pay, accounted for an average of 3.1 per cent of total compensation budgets, while salary increases amounted to 5 per cent.
In 2017, one-time payments consumed 12.7 per cent to those budgets; raises amounted to just 2.9 per cent.
Why are they doing that? Because bonuses are cheaper. Raises are annuities – each year, employers are paying more, and those increases compound over time. Bonuses cost less, are easier to dole out and the effect is immediate. They create exactly the type of goodwill companies want after the negative press of receiving a massive tax cut.
“The recessionary hangover encouraged employers to avoid adding fixed costs and to be as flexible as possible in staffing and compensation,” writes Patricia Cohen in the Times. “The trend toward outsourcing work that was once handled in house as a way of saving money fits in with that story line.”
Importantly, the increase in bonuses has not helped wage stagnation.
Federal Reserve Bank of Atlanta
“The inflation-adjusted median income of men working full time was lower in 2016 than it was in 1973,” writes Cohen. “And their lifetime earnings – which include salary, wages, bonuses and exercised stock options – have mostly dropped since then.”
Bonuses aren’t the only reason that wages haven’t grown, as Cohen points out. There are a number of factors, including the decline of unionisation, globalisation and a minimum wage that was higher in 1968 (in inflation-adjusted dollars) than it is today.
Some of the companies, like AT&T and Walmart, are giving out bonuses to select workers, while laying others off.
If your company is giving out a bonus, but not a raise, you’re obviously not going to turn that down. But there are other steps you can take:
- Make for a raise (this is a bandaid and doesn’t fix the structural problems with wage stagnation, but it’s something you should consider).
- Join and/or form a union at your company, which can bargain for you. “Among full-time wage and salary workers, union members had median usual weekly earnings of $1,041 [$AU1,312] in 2017, while those who were not union members had median weekly earnings of $829 [$AU1,045],” per the Bureau of Labour Statistics.
So while there’s nothing wrong with a bonus, if it’s an either-or situation, raises are better for workers.