Christmas Bonuses Are Being Replaced by Incentive Plans

Performance-based incentives increasingly are taking the place of year-end bonuses when employers decide who’s been naughty or nice at holiday time.

Although bosses who substitute incentive programs for traditional holiday bonuses risk being called Scrooges, the trend actually reflects the Santa Claus principle of rewarding “good,” meaning productive, behavior, says consultant Paul Muller.

“Bonuses, like salary, are no longer being treated as an entitlement,” said Muller, director of Midwest compensation consulting for Ernst & Young, a New York-based consulting firm.

“In effect, management now is saying, ‘To the extent that you help us be successful, we’ll help you be successful,’ ” Muller said Wednesday in a telephone interview from his Chicago office.

The move away from holiday bonuses coincides with a trend toward fewer employee and retiree benefits--especially in the health insurance area--and lower corporate profits.

But Muller said the elimination of year-end bonuses is motivated more by management’s desire to increase worker productivity than by cost cutting.

While U.S. employers are becoming less generous with bonuses, their Japanese counterparts are growing more so. Japanese companies ordinarily pay bonuses twice a year, in summer and before the new year.

Employees at 291 Japanese companies got winter bonuses this month averaging $4,870, up 7.3% from last year and the biggest increase in nine years, the Japanese Federation of Employers Assn. said Wednesday.

An association official in Tokyo attributed the increase to business prosperity in Japan.

Compensation experts said traditional year-end bonuses in the United States typically represent 5% to 6% of annual pay for hourly workers and 10% to 15% for middle managers and executives.

Muller had no statistics to support his contention that year-end bonuses are disappearing. But other experts said a trend toward incentive-based compensation was apparent.

“There is a great deal of increase in the use of variable pay . . . tied to some performance measures,” said Frank Belmonte, a compensation consultant with Hewitt Associates in Lincolnshire, Ill.

Bob Kurisu of Strategic Compensation Associates in Los Angeles said Christmas bonuses are “kind of an anachronism” and are rarely found in large corporations.

But at companies where year-end bonuses have been traditional, Belmonte said, workers often expect them--and management may feel obliged to hand them out--even if the company has not had a particularly good year.

“When you consider eliminating it, it’s not an easy thing to do,” he said. “It’s a very emotional issue.”

Therefore, he said, employers planning to replace the annual giveaway with an incentive-based program should give employees plenty of advance notice and spell out clearly the performance goals they will have to meet to qualify for incentive pay.

“Don’t eliminate it and say nothing,” Belmonte said. “Eliminate it and do a lot of communication and explanation.”