Year-End Bonuses Being Replaced With Performance-Based Plans

Even if you didn't get a Christmas bonus this month, help in paying for your holiday season gift-buying excesses still may be on the way.

The traditional year-end bonus, a fairly predictable sum slipped into employees' pay envelopes every December, is gradually being replaced by more volatile, performance-based compensation.

And, as part of that shift, many firms now wait until January before handing out the money. They need the extra time to calculate how profitable their past year was and, consequently, how much should be paid out in bonuses.

In fact, at companies where the fiscal year closes in a month such as, say, September rather than December, annual bonuses are much more likely to arrive in the fall rather than in or around the holiday season. "The idea of a Christmas bonus is just something I don't hear about any more," said Virginia Detweiler, a human resources consultant with the management advisory firm William M. Mercer Inc.

Likewise, employees judged to be doing subpar work or whose companies are struggling are increasingly likely to miss out on getting any bonus--during the holiday season or otherwise. While that long has been true for many executives, the same rule now is being applied to more lower-level workers.

Employers are "moving away from what they call the breathing bonus--in other words, you've been here for a year, so you get a bonus as long as you're breathing," said Rick Beal, a compensation specialist with the Watson Wyatt management consulting firm.

Even so, examples of Christmastime corporate generosity persist. In one spectacular case, Fountain Valley-based Kingston Technology Corp. announced at its holiday party two weeks ago that it set aside $100 million for employee bonuses, including $40 million paid out this month.

More typical of the traditional approach, though, is what took place at Walgreen Co., the nation's biggest drugstore chain. The company issued modest bonuses--ranging from $25 to $200 for full-time employees--on Christmas eve at its 2,200 stores across the country as well as at its headquarters in Deerfield, Ill.

Jim Schultz, the company's director of performance development, concedes that the money is too little to truly motivate employees. Still, he said, during the holiday season "people are working their butts off in the stores, and the rationale was that you really need to say 'thank you' to them. . . . You'd feel truly unappreciated if you didn't get one [a bonus]."

While the slow disappearance of that type of traditional Christmas bonus may seem like the passing of another beloved American tradition, compensation experts insist that the emerging approach actually is kinder.

Generally speaking, old-fashioned Christmas bonuses have been based on employees' weekly pay and their length of service with the organization. That means that two typical employees, even if they do the same job and perform equally well, could receive vastly different bonuses.

The result can be employee resentment instead of goodwill, said Gregg Conroy, director of compensation and benefits for Alcoa Fujikura Ltd., a maker of auto components and telecommunications equipment headquartered near Nashville.

Conroy used to work for a company that issued Christmas bonuses the old-fashioned way. But at Alcoa Fujikura, workers receive bonuses in January that take into account such things as their business unit's safety record and productivity along with the company's overall profits.

"If the bonuses are being paid out, they're being paid out because performance is good and earnings are good," Conroy said. "This lets the employer say 'thank you' more appropriately and more accurately. And if there's a basis for a big thank you, then you get a big thank you."

What's more, he said, the size of the January bonuses should be no big surprise. Employees, he said, are supposed to be told well in advance how their company's pay-for-performance system works. So, even if there are some last-minute adjustments in January when the annual financial performance is computed, workers already should know roughly what they're getting.

Times staff writer Stuart Silverstein can be reached by phone at (213) 237-7887 or by e-mail at

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