should I push back against getting annual bonuses instead of raises?

A reader writes:

My workplace wants to start giving out annual profit share bonuses in lieu of salary raises. Basically, the base bonus (which is based on how well the company does that year) would be multiplied by the number of years someone is there (so for the sake of simple math, if the base bonus is $500, then it would $1k for 2-year employees, $1.5k for 3-year employees, $2k for 4-year employees, and so on).

While it’s nice to get a lump sum at the end of each year, I know that this is no substitute for long-term career salary growth. As I gain more experience in my job/industry and contribute greater value to this company, getting bonuses in lieu of raises ultimately feels like they’re trying to get out of paying me what I’m worth. Am I wrong to think these bonuses would be drops in the bucket compared to the long-term salary potential of getting regular percentage raises? How hard should I be pushing back against this? And how do I push back politely?

Yeah, although it depends on exactly how big the base bonuses are, this system probably means you’re going to get less money in the long run. For one thing, when you do raises as a percentage of your salary (which most employers do), the size of your raise grows exponentially over time.

But also — and importantly — your salary is pretty locked in, unlike a bonus, which can change at the company’s whim. (Sure, they could change your salary too, as long as it’s not a retroactive decrease, but it’s waaaayyy more common to lower bonuses than to lower salaries.) There’s a reason they’re doing it this way, and it’s probably that they like the flexibility it gives them to pay less some years — and that flexibility probably works out in their favor more than in yours. (Or who knows, maybe not — but I’m skeptical.)

Plus, when you move to your next job, a lot of employers are only going to care about your base salary, not your at-the-discretion-of-your-employer annual bonuses.

Last, there’s apparently no accounting for merit in this system, which may or may not bother you, but it means that you’re not going to get more if you out-perform the expectations for your role. You presumably might get promoted, but generally it’s good to get paid more for contributing at a higher level.

How hard you should push back depends on the usual combination of factors: how senior you are, what your standing is there and how valued you are, how much capital you have to spend, what other battles you might be fighting at the moment, how strongly you feel, and how strongly your coworkers seem to feel and whether any of them are willing to go to bat with you. And in this case, what the actual numbers work out to be. If the annual bonuses are huge, that’s a mitigating factor on much of the above. If they’re not … that would be more impetus to push back.

If you do decide to push back, I’d point out the stuff above — that you should be confident that your total pay for the year will reflect your contributions to the company (and not be a surprise); that your pay should be pegged to the market rate for your work, increasing as your level of contributions increase; and that your base salary will matter to your future salary growth, both now and whenever you move on. You can also point out what other employers in your field do, and frame it in terms of competitiveness and your company’s ability to attract and retain strong people.

{ 174 comments… read them below }

  1. jb*

    This kind of compensation gimmickry nearly always is a sleight-of-hand way of paying people less.

    In this case, it depends on the details (How are they figuring the base bonus amount? What fraction of people have been there how long?), but the basic shape of the deal is that they’re hoping people see dollar signs when they look at their bonus amount, and not realizing that it’s less than they’d get with a raise spread over 26 paychecks.

    1. Rusty Shackelford*

      And even if the bonus is *more* than they’d get with a raise, that’s only for the first year. It doesn’t account for the fact that they get the raise *every* year, and so each year’s additional money is added to the previous year’s.

      1. Kyrielle*

        This! Let’s say the salary is 50,000 (because I like round numbers) and the bonus is 2,000 (see round numbers). Is that better or worse than a 2.5% raise yearly?

        Well, at first it’s better – $1250 raise vs $2000 bonus. But the second year a 2.5% raise would bring you up to $2,531.25 in extra money, already over the bonus. (If the bonus were $5000, it would take four years to hit that point – and longer to hit the point where the accumulated sum of the bonuses was less than the accumulated sum of the raises.)

        Now, the bonus is hands-down better than no bonus and no raise. And it’s possible that it’s large enough to offset for several years. But it’s not a great deal, by itself. (I do have a bonus scheme, and like it – but it’s in addition to, not in place of, regular raises.)

        1. Lauren*

          Kyrielle, your calculation is missing the part where OP’s bonus is multiplied by the employee’s tenure at the company. So the raise goes up each year, but so does the bonus, and which one is more advantageous depends on the relative amounts of each. To apply that to your example: in year two, the raise would be $2,531.25, but the bonus would have doubled to $4,000 because the employee has now been there for two years. So if we’re comparing a 2.5% annual raise to a bonus of $2,000 x # of years of tenure, it would actually take almost 40 years for the total salary increase to be more attractive than the total bonus. Not saying I support a bonus over a salary increase — just wanted to clarify that in the example you’re describing, it’s actually a pretty good deal!

          1. Drama LLama's Mama*

            But the proposal isn’t $2K x years of service, it’s $500 x years of service. So if you are at $50K and 4 years of service, here’s what the total compensation looks like for each plan, with the bonus plan first:
            End of Year 4: 52,000 (50K + 2K)
            End of Year 5: 52,500 (50K + 2.5K)
            End of Year 6: 53,000
            End of Year 7: 53,500

            Under the raise plan:
            End of Year 4: 51,250
            End of Year 5: 52,531.25
            End of Year 6: 53,844.53
            End of Year 7: 55,190.65

            Your compensation outpaces the bonus structure in the third year under the raise scenario.

            1. BF50*

              That assumes a fixed base bonus, but the bonus “is based on how well the company does that year”.

              The base might be $500 one year, $1000 another, and only $100 the next. With this plan you cannot predict your future income above the base amount.

              1. teclatrans*

                I think it is a set base (in this instance, $500), and then more if the company does really well. Which means that the company performance piece might make Years 3 and 4 in the scenario above still cone out better with the bonus. Or…not.

                I think there is a morale hit to being paid less in salary than you are worth. The only place where slowish salary+bonuses make some sense to me is when there is a rather first correlation between your work and the company’s income (sales, for instance).

                1. JustaTech*

                  Yes, this! There’s nothing like “oh, we might not get bonuses because the folks over in sales didn’t make their numbers even though you in manufacturing busted tail and saved the company $X”.

                  I’ve seen companies structure their goal requirements so that basically everyone would have to spontaneously combust before you failed to meet enough goals to get 100% of the bonus. (This is usually at places where the C-suite’s pay depends entirely on meeting the goals.)

              2. anontoday*

                I think the part about it being based on how well the company is doing means that if the company isn’t meeting a certain level of expectations in profit, bonuses will be less or nonexistent. It *could* mean you’d get paid extra in good years, but at many companies, it’s an opt-out of the company for years it doesn’t want to pay bonuses.

          2. Kyrielle*

            Oops, point. I did miss that!

            Honestly, one reason I prefer raises is they’re harder to take away. The other reason is because having a set number for a year saves me from my own skill at math…. :)

      2. GlitsyGus*

        So much this. Also, pay attention to taxes. I know where I am, at least, bonuses are taxed at a higher rate than standard salary, so while you get one number as your “bonus” your take home of that is way smaller than what you would be taking home if that same amount was added to your yearly salary.

        1. GlitsyGus*

          **Withheld at a higher rate- typo. But in my personal experience it still somehow ends up working out to not ending up with the same amount after all is said and done at tax time, though of course other situations may fare differently.

          1. Natalie*

            If you’re in the US that’s literally impossible. Both your wages and any bonuses appear totaled together in the same line on your W2, the IRS has no idea which dollar was wage and which was a bonus.

            The reason bonuses are withheld higher is that all supplemental payments are withheld higher, but they aren’t reported differently.

    2. Queen of Draggin's*

      See also, Bonuses are taxed at a higher rate than a base salary might be. Say 40% Or more depending on factors. What happens if you leave or get terminated, laid off before “Bonus time!” ?

      1. I am who I am*

        Bonuses are withheld at a higher rate, not taxed at a higher rate (assuming you’re in the US).

        the second point you make is super key, however.

      2. Steve*

        Bonuses are not taxed more than salary. They are sometimes withheld at a higher rate than salary. But you get any excess back as a refund, or you can adjust your W-4 to have the right amount withheld for the year overall.

        1. Dave*

          If this go through watch your withholding. Your taxes can become problematic if they don’t fully withhold on your bonus. My office likes to not necessarily withhold the taxes properly so the amount of the bonus looks better on your paycheck.
          The bonus system can works when you top out on salary range.

  2. Engineer Girl*

    Your base salary isn’t increasing. That means that you’ll be earning less each year due to inflation.
    This is a salary freeze that is being marketed as something beneficial to you.

    1. Emily K*

      Yes, exactly this. At the very least if they want to replace merit raises with bonuses (which is still crummy and bad for long-term retention), there should still be an annual COLA on the base salaries to ensure that employees aren’t getting paid effectively less over time.

    2. Snarkus Aurelius*

      Even though the bonuses are allegedly tied to company performance, your employer can still make up reasons not to give you a bonus or a lower bonus than you expected.

      Unlike your salary, your employer can argue that it can’t pay out bonuses this year because of a major unexpected project here or we’re catching up from budget cuts last year or we need the money for next year because we anticipate hard times or the sky is falling or whatever.

      ***Employees would never accept those excuses for a permanent reduction in base pay, but they do all the time for bonuses because the latter is far more believable and there’s always a chance next year.***

      1. Beth Jacobs*

        This. I worked at an multinational law firm. The set up was, as is common among such firms, basically a franchise model where the firms shared a brand and some services (IT, marketing); but each country had its own LLP owned partly by the UK LLP and mostly by the local partners.
        My firm made a huge profit that year and increased revenue by 40% by acquiring a buttload of new clients. That year, there was no bonus. Why? The UK LLP took a hit because of Brexit. Nevermind that the UK LLP had completely separate finances and bonuses would have come out of the local budget, which was doing great. The “firm” had turned a loss so there was no bonus.

      2. GlitsyGus*

        YES! We have a bonus structure at our company that is based on company performance. It really seems that it’s rather arbitrary what factors get thrown in the offset the profit margin on some years in order to “show” we didn’t actually reach the level needed to offer bonuses when Management isn’t really feeling generous.

      3. Gatomon*

        Yep, this is my biggest beef with this idea. They could rig the bonus scheme to be better than regular raises if the bonus was generous enough. But the first thing the company is going to do to save money is cut the bonus. And then what happens if the company doesn’t meet the bonus criteria or changes the bonus criteria to make it more difficult to achieve?

        A bonus is just a chance at earning an extra pile of money, it’s not ever meant to be a guarantee like an actual salary adjustment.

      4. Chaordic One*

        This is so true. I’m aware of a situation where, strangely enough, the only people who got performance bonuses also all happened to belong to the same church as the owner of the company. (The owners didn’t see anything wrong with this.) There was a lot of turnover among employees who did not belong to that church.

    3. Lizzy May*

      This. In five year’s time, if you base salary hasn’t gone up, think about how much less you’d really be earning.

    4. BurnOutCandidate*

      When I was negotiating salary for a job, the base pay offered was lower than I expected, but I asked, “Is there a bonus program?” Told there was, and that it was annual, I accepted the position.

      I should have pressed further. When I heard “bonus program,” I was comparing it to the job I was leaving; roughly a month’s salary every quarter, sometimes more, sometimes less. An annual lump sum payment equivalent to a month or two of salary was really attractive. In reality, the “bonus program” was 50-70 dollars per year, and one year (during a salary freeze) the bonus was a coupon for half off a meal (not even a whole meal!) at a local BBQ joint.

      1. A bit of a saga*

        I had something similar – I came from a corporate environment with decent bonuses and moved to a consultancy where the bonuses were basically a joke (though not as bad as yours!). My base pay increased so I didn’t take a hit but for sure it taught me for my next job move 1) to ask the specific range of bonuses 2) to not accept any promise of a bonus in lieu of good base pay.

    5. Mallory Janis Ian*

      My university has this pay structure for non-exempt staff. We do get cost of living raises of whatever percentage per year, but any merit increase gets paid out as a lump sum and doesn’t accrue to the base salary. The staff senate has been working for years to have merit increases go to the base salary. So this year, the scheme is a 2% cost of living increase for everyone, and merit pay based on a performance rating scale: Unsatisfactory = 0%; Satisfactory = 1%; Above Average = 2%; Exceeds Standards = 3%.

      U rating: 2% cost of living + 0% merit = 2% increase to base pay
      S rating: 2% cost of living + 1% merit added to base pay = 3% increase to base pay
      AA rating: 2% cost of living + 1% merit added to base pay + 1% merit paid as lump sum = 3% increase to base pay
      ES rating: 2% cost of living + 1% merit added to base pay + 2% merit paid as lump sum = 3% increase to base pay

      Since there is a cost of living raise, does this scheme seem fair? It seems to me that it limits the long-term income potential of top performers disproportionately. This is also a place where many people do stay for 20+ years, so the results are more likely to be long-term cumulative.

  3. Trout 'Waver*

    This is aggravating. Let’s say you work under such a system for 30 years and get a 3% raise every year. Let’s say you start at $50k. Over your 30 year career, you would make ~$226,270 less under the bonus scheme than the traditional raise scheme. That’s over 10% of your total compensation. Your year 30 income is 21% lower. It gets even worse if you go out further.

    1. CAA*

      I also did some math in excel, and discovered that if you get a 3% bonus or 3% raise at the end of every year, it’s actually not until year 10 that compounding starts winning out on an annual basis; and it’s after year 16 before the lifetime earnings are greater under the salary scheme. So, if the numbers were truly equal, this actually isn’t as clear cut a decision as I had intuitively thought it would be, because most people don’t stay at the same employer for 16 or more years. The net effect of this bonus method is to shift money from the pockets of those who’ve been there longer into the pockets of employees who’ve been there less time.

      year salary bonus
      Year 1 $50K $51.5K
      Year 2 $51.5K $53K

      Year 9 $63,339 $63.5K
      Year 10 $65,239 $65K

      I think the biggest risk for the employees is that the company makes no guarantee that they’ll put the same percentage of their revenue into bonuses in the future as they have put into raises in the past.

      1. JB*

        Right, it is plausible you’d get paid more under the bonus scheme as described if the employer is setting the base bonus amount fairly, and that you’d be able to figure out you were getting paid more if they set it transparently. But if they were looking for a fair and transparent way to reward performance, they could, you know, give raises like normal companies do, and not try to reinvent the wheel like this.

        1. CAA*

          If you receive the raise or bonus at the end of the year, then the raise has an effect on future earnings while the bonus figures into the current year’s total.

      2. Rusty Shackelford*

        Okay, I’m not a math person, but I don’t understand this.

        Year 1. You’re making $50K. You get a 3% raise. You’re now making $51.5K.
        Or you get a 3% bonus. You’re now making $50K but you have a $1.5K bonus, for a total of $51.5K.

        Year 2. You’re making $51.5K. You get a 3% raise. You’re now making $53.04K.
        Or you get a 3% bonus. You’re now making $50K but you have a $1.5K bonus, for a total of $51.5K.

        I mean, it seems like the raise gets you more money starting on year 2. What am I missing?

        1. Rusty Shackelford*

          Whoops. Year 2 should be…

          Year 2. You’re making $51.5K. You get a 3% raise. You’re now making $53.04K.
          Or you’re still making $50K, because you didn’t get a raise last year, but you get a 3% bonus. You’re now making $50K but you have a $1.5K bonus, for a total of $51.5K.

          1. Becky*

            The OP states that the bonus is multiplied by how many years you’ve been there. so in the math year 2 is 50k +(2*3%)

              1. Someone Else*

                But with the bonus you’re not guaranteed to get one, and it’s never guaranteed how much it’ll be. There’s probably a formula like, company made 10% over budgeted goal, then bonus base = $500. Company made $20 over budgeted goal, then bonus base = $800. Or whatever formula they come up with. Which might also include “anything less than 10% profit means no bonuses at all”. So the bonus is unlikely to be a fixed percent of what you make, multipled by tenure or not, and the company has a couple of bad years, suddenly you’re back at $50,000 until they start hitting goals again.

                I usually see this type of “bonus instead of raise” pitched as a way to get employees caring about the profit margins of the company as a whole, as if they’ll work harder to make sure goals are met when they can do the math themselves to see how it affects their compensation directly. But really, good employees do quality work anyway, not just with the dangling carrot of what is effectively a guaranteed pay cut if targets aren’t met. Management is usually much less likely to cut pay on the reg unless it’s a REALLLY bad year. But by establishing bonuses instead of raises they get to do that without having to frame it as a cut. Instead it’s just “never an increase”.

        2. CAA*

          Year 1, you’re hired in on Jan 1 at a salary of $50K. On 12/31, you get either a 3% raise or 3% bonus.

          In the raise scenario, it only affects the future, so you earn $51.5K the next year (year 2). Similarly, at the end of the year you get another 3% raise but it affects your earnings in year 3, it’s not retroactive to year 2.

          In the bonus scenario, it goes on your W-2 for the current year, so you earn $51.5K the first year. In year 2, you still earn $50K but your bonus is 2 x $1.5K so you earn $53K for that entire year. etc, etc.

          Obviously there could be all kinds of tweaks that we don’t know about which might change the results. Maybe year 1 people never get a bonus in this plan, so you have to be there 2 full years or maybe everybody does get a raise after 5 years. And definitely people don’t all start working on Jan 1. My main point here is that it’s not as obvious as it seems that the bonus method is definitely going to harm all employees immediately.

      3. doreen*

        Your chart assumes that year three’s bonus is based on the salary +bonus earned in year 2. I don’t know that that’s a good assumption-when my husband has received a percentage bonus, it was always X% of salary, not X% of last year’s salary +bonus. So in year two, his 3% bonus figure would have been $51.5K. In fact , as long as his salary remained $50K, a 3% bonus would have been $51.5K . Which means the raise puts you ahead in year three- slightly over $53K with a 3% raise each year vs $51.5K with a 3% bonus each year.
        And that’s if the company gives the 3% raise or bonus each year – if business is bad and there is no bonus or raise at the end of year three, then the person with the 3% raises after years will be earning about $53 K while the one with bonuses in years one and two will still be earning $50K.

        1. CAA*

          According to the OP, the bonus is multiplied by number of years worked. At the end of year 2, you’d get twice as much bonus as at the end of year 1. If the bonus were 3% of $50K at the end of year 1, then it would be 6% of $50K at the end of year 2.

        2. doreen*

          Ok, I think I see your assumption- but why would you assume that in year 2 you would get a 2 x 1.5K bonus ? That’s actually a 6% bonus – and it would mean if someone stayed at the company 30 years they would be getting a 90% bonus. That’s a system I don’t believe would exist anywhere – it’s not the one in the OP because the base amount there wasn’t a percentage, it was dollar amount that would change every year based on the companies profitability.

      4. epi*

        I don’t think your example is realistic. To get your results, I had to assume that the bonus structure gives the employee an extra 3% of their base salary for every year of service. Under the bonus program, the base salary stays the same and only the bonus multiplier changes. 3% per year of service is a pretty big bonus for employees who don’t typically earn most of their pay through incentives. And the OP’s example used a flat dollar amount that is multiplied by years of service.

        If the OP’s company used a dollar amount, then the dollar value of the base bonus is the dollar value of every employee’s “raise” that year since they only earn one year of seniority per year. If the numbers in their example were accurate, then every employee paid this way would get a pitiful raise of $500 for the whole year. They’d earn $55,000 in Year 10. And that is if we generously assume that the company counts them as eligible for a bonus in both their first and last year of employment.

        I realize the OP’s example was just that, but the (flat bonus * years of service) structure really is pretty bad. If I were the OP, I’d bring it up. And if they implemented it anyway, I’d subscribe to that company’s Glassdoor reviews and stock up on popcorn now to lighten the mood during my job search.

        1. CAA*

          To do the comparison, I did assume that everyone gets 3% of $50K as a raise/bonus every year for 30 years, because that’s the exact scenario that Trout Waver used in the post I responded to. It may be unrealistic to expect the company to continue using 3% year after year, but it’s helpful to keep these variables constant when you’re trying to understand the impact of these two payment schemes on an employee.

          Mathematically, it doesn’t matter if you say the bonus is $1500*years or if you say it’s 3%*$50K*years. For the end of year 2 bonus, 6% of $50K is exactly the same as a $1500 bonus x 2 years. Both of them are $3000. Likewise at the end of year 3, 9% x $50K = 3 x $1500.

          1. epi*

            Almost everywhere, a 3% annual bonus would be 3% of the base salary. Under this scheme, the base salary would never change, so the bonus would be the same every year.

            I’m struggling not to take us too far off topic, because I enjoy playing around with this too and have my own Excel sheet up to try out different scenarios. But there is a huge difference between a dollar bonus and a percentage bonus; and the most relevant one is the one the OP says they would be paid, since it’s their question. For some employees at that company, $500 is probably huge. For others, it’s a drop in the bucket. Maybe the OP earns a salary where the immediate disadvantage to them isn’t so great. But for others, it is likely to be quite large.

            I think we can also do a plausibility check on these numbers, besides using our background knowledge of what a typical bonus structure is like. This company is making a big, visible change to their payment structure that will probably be unpopular for lots of reasons besides just the amount of pay, such as unfamiliarity, uncertainty, and making people live on the same base salary before receiving a year-end lump sum. Even the most generous bonus structure we could think of was inferior to just giving raises. It’s more likely the company is doing it to save money– like most companies that try this are doing– and picked a structure consistent with that goal. Plus, that’s what the OP described.

            The bottom line is that all of these structures end up paying the employees less over time, and the OP is right to object.

          2. doreen*

            Trout Waver didn’t specify any details about the bonus plan in that scenario- I assumed it was the one in the OP which was simply base amount ($500 used by OP as an example) * years of service regardless of salary. So that three people earning $25K, $50K and $100K all of whom had ten years service would get the same bonus. Using Trout Waver’s $50K salary example and the OPs $500 base bonus that would be
            Year 1 50K 50.5K ($500*1)
            2 51.5K 51.0K ($500*2)
            3 53045 51.5 ($500*3)
            (Trout waver, please come back and let me know if I understood correctly)

      5. Binky*

        But the OP specified that it’s not a % based bonus – it’s a flat $ multiplied by years of service. Which is just a weird way to work bonuses, especially if this really reaches everyone. For example:

        The VP of accounting is a new hire at 100k/year
        Her EA has been at the company for 10 years and has a salary of 50k/year
        The mail clerk has been at the company 20 years and has a salary of 20k/year

        Say the first year the base amount is $1,000.

        VP takes home $101k
        EA takes home $60k
        Mail clerk takes home $40k

        VP ends up getting a 1% bonus, EA gets at 20% bonus, and the mail clerk ends up doubling her salary.

        1. BF50*

          I was thinking that, too. Either no one has worked at this company for more than 10 years, or the system is more complicated than described in the letter.

          (e.g. Bonus is .5% times years of service, or bonus ix $X times years of service, up to a max of $Y.)

          Either way, I’m not a fan.

  4. Antilles*

    Plus, when you move to your next job, a lot of employers are only going to care about your base salary, not your at-the-discretion-of-your-employer annual bonuses.
    I think she should count those in though – if that bonus is reliably there, I don’t think it’s at all unreasonable to report your current pay as $55k even if it’s actually $50k salary and $5k in annual bonuses.

    1. Persephone Mulberry*

      Right, this is how I talked about my salary from my last job while searching – “my salary was $A (biggest number), which included a base of $B and an annual profitsharing bonus of C%.” While the bonus was “discretionary” it had been reliably between C and D percent for several years, and A was my target number when I was considering salary for my next job.

    2. Lillie Lane*

      Though I was always scared to share any numbers for the bonus at my former company, because they claimed the bonus structure was proprietary and confidential :|

      1. Antilles*

        That’s always made me laugh.
        Proprietary? It’s a bonus structure! You did not invent a magical new structure of pay; the concept of “giving extra pay employees for doing a good job” dates back to the original invention of currency back in antiquity.

      2. Bea*

        Their claims are to keep you from discussing amounts with others you work with. They’re full of crap.

    3. doreen*

      But in this case ( and I suspect most cases) it’s not going to be reliably there. The base bonus is going to be based on how well the company does – it’s definitely going to vary from year-to-year and presumably there could be years with no bonus at all. Most substantial bonuses are either a form of profit sharing or are based on an individual’s or teams performance.

    4. insert pun here*

      Yes — and I have done this when moving from a company with a bonus to one without (bonuses are rare in my industry.) I also didn’t reveal my salary, which may have helped. The language I used was “my current compensation is in the form of salary plus bonus; I understand that XYZ company doesn’t pay bonuses, which is obviously fine. I’m looking for something in the range of $X to $Y.”

  5. Pop*

    I’m also assuming that the bonus comes once a year, and won’t be given to any employees who aren’t there on that day. That means that if the scheduled bonus comes June 30, but an employee has their last day on June 20, they will have worked for an entire year looking forward to their bonus, but not receive it. I highly doubt the company would give half of the bonuses to employees who leave halfway through the year.

    1. Kiki*

      This happened to me. Bonuses were supposed to go out on June 30th (end of fiscal year), but the company dragged its feet and said the checks would be sent out “soon”. When I left at the beginning of August we still hadn’t received the checks and I was told I wouldn’t be getting my bonus because I was leaving before they were handed out. Despite the fact that I’d worked the entire fiscal year that the bonus was calculated on. So aggravating.

    2. Antilles*

      Right. Every single day you work beyond June 30th gets you more and more progressively screwed by the annual bonus-not-raise because you’re leaving more on the table.
      A similar concern: Many companies have structures around on their bonuses to avoid the whole “bonus day is today, screw you, got mine, I’m gone”. The most common is some kind of ‘vesting’ agreement where it hits your account in stages so that you need to actually stay an extra X months to get the full bonus.
      If they’re really doing Large Bonuses, I’d be pretty confident that they’d have a stipulation like that. Maybe not when the system is originally rolled out, but after the first or second time they give the June 30th bonus and someone leaves in July, they probably will feel miffed and make some structure along those lines.

      1. Steve*

        I’ve never seen that. I have seen bonuses paid in smaller increments, but only insofar as they were paid out quarterly, for the work / company profit the previous quarter.

        If I had to wait up to two years between working a day, and receiving my full pay for that day, I would not consider that bonus as part of my expected pay. And if that bonus was needed to bring my pay to market rate, I would probably just find a different job.

        1. a good mouse*

          We have long term incentive program at work, where you might get a $12,000 bonus but paid out over 4 years so really it’s a $3000 bonus each year. If you leave you keep what you got but don’t get the rest.

        2. SAHM*

          My husband’s bonuses are set up for vesting as well. He gets a yearly raise of 2-3%, and then the bonuses are calculated using some crazy math, which breaks down to he gets X% of the bonus in cash and Y % of the bonus in stock that vests the following year. So every April the stock he earned the previous year vests and he finds out how much he gets in stock the following year. They pay Very Well so it’s a decent retention scheme in my mind.

    3. Lizzy May*

      This is very true as well. At my large company, bonuses go out at the end of December. You see a migration out every January of people who stuck around to get their bonus and then left.

    4. designbot*

      Yep. I’ve worked for a company that had not quite this scheme but heavily emphasized bonuses as part of the compensation package, and there was an exodus every year in the month following bonuses. Everyone who’d been at all dissatisfied there waited until they got their bonus to leave. Also the company tended to take a last look at who they wanted to keep on the books in the month beforehand, so we wound up with two months worth of massive turnover.

  6. Cait*

    I wouldn’t want to be hired by a company that only sees my tenure as a merit for a bonus. What’s the motivation to be a high achiever if middle-of-the-road-Joe is going to get a bigger bonus just because he’s been there longer?

    1. LSP*

      I’ve always been annoyed when tenure is weighed so much more heavily than merit in terms of raises and bonuses. For me, it’s acted as a *disincentive* to stay at a place too long, because I knew I wasn’t being paid what I was worth.

      Last year, my company gave an across the board 2.9% raise, plus a year-end bonus, but I am still about $10k under what I estimate I should be getting (based on research from several sources). I plan to ask for a merit-based raise this year, to move me closer to the average salary for someone in my position in my area of the country with my experience.

    2. Chicken Situation*

      I’m considering leaving my current job because I found out that someone 2 levels below me makes more than I do, despite the discrepancy in titles and the fact that I VASTLY outperform them (not an opinion; everyone agrees on this). On top of that, everyone got the same percentage raise this year, so I would have gotten the same if I’d done mediocre to average work. It is incredibly disheartening. In theory, the powers that be are trying to get me a raise, but if it doesn’t materialize, I’m out (which is a shame, because I like the job).

      If the OP’s company goes with this structure, I predict they will lose a lot of good people. If the OP has a rapport with other colleagues who are high performers, I’d suggest trying to get them on board for the push back. I mean, obviously you’d want as many people as possible to push back in a group, but hopefully having the high performers express their dissatisfaction would have some influence.

      1. Chicken Situation*

        I should note too that per my research, I’m underpaid for my job description and experience, and my colleague makes so much because she’s been here FOREVER.

          1. Chicken Situation*

            Because moving isn’t feasible and there aren’t a lot of jobs in my field or adjacent fields in this area any more. Besides, there are good things about this job, so I’m not going to jump ship for just anything; the new position has to be right.

            1. Tony*

              So in the companies I have been working on, I had managers who try to ‘guess’ how much they should pay someone so he does not leave (rather than paying what would be fair).

              In my opinion, asking for salary reviews or mentioning that you are possibly underpaid can sometimes work in your favour if you can back up your claims.

      2. Steve*

        Usually the opposite happens. Existing employees get a small “merit” increase which just so happens to just about keep up with inflation. Meanwhile, new employees are hired at market rate, which can be significantly higher. (At least in my industry, in the tech sector.)

          1. NotAnotherManager!*

            This is when I truly love my HR people – we do this proactively every year and adjust those who are under current market. I also cannot imagine the hell that would break loose if similarly situated people found out those hired after them were getting paid more.

            1. Steve*

              The older people would have to leave to get market rate, or they would stay and get disgruntled. Neither seems good for the employer but it’s the way most [citation needed] employers choose to operate.

          2. Steve*

            I worked at a (crappy) place that limited raises to at most 10% of existing salary, even in case of promotion. No amount of lack of shyness would have helped that.

        1. Chicken Situation*

          This is what happened at my previous job. It meant that the brand new people were often making more than the people with the toughest workloads. I was glad I was able to get out shortly after I found that out.

        2. Jady*

          >Existing employees get a small “merit” increase which just so happens to just about keep up with inflation.

          This drives me CRAZY. My current company does this, every single year there is a company-wide raise of 2-3%. And that’s great (a lot of companies don’t even do this), but getting a dime more than that is a nightmare. It took me 3 years of fighting to get ONE proper raise.

          But you ask most of the employees here, they are thrilled and satisfied with it. People don’t even ask for bigger raises than that. I’m looked at like the Grinch when I say that’s the least any half-decent company should do.

    3. EddieSherbert*

      This was exactly my thought. If I was a high performer, I’d be upset of a lower performer who has been around longer was getting a better bonus than me.

      1. Ursula*

        As a high performer who started my career in the Great Recession, I actually look at this the opposite way – in my experience, it has been extremely easy for employers to put off deserved raises for whatever excuse-of-the-week they come up with. At least with tenure-based increases I know I’ll get a raise eventually.

  7. Interviewer*

    If they’re paying bonuses to people who contribute in a variety of ways to increase profit, they should not base it on a metric completed unrelated to it like years of service, nor should they spread it in even installments across the entire population. It also reflects zero effort by management to recognize anyone for going above & beyond that year. And 0% raises? This setup will drive off the high performers, and create a group of people doing just enough not get fired.

  8. CS Rep By Day, Writer By Night*

    This would be a 100% no-go for me, if for no other reason than because here in the U.S. at least, bonuses are taxed at a higher rate than your normal salary. I only wind up with about 60% of any bonus I get.

    1. Ptarmigan*

      I believe this is a misunderstanding on your part. Bonuses are typically taxed at your top tax bracket rate – just as that bonus amount would be were it spread out over the year. It only looks like it’s taxed at a higher rate because it’s not blended with your base pay, where you get taxed at a lower rate on the first $x dollars.

    2. Guacamole Bob*

      I thought this was usually because they have to withhold taxes from each paycheck as if you were making that amount the whole year, and that most people got a lot of that money back when they filed their taxes? At least, I believe that’s how it’s worked for me in the past.

      But yes, bonuses have higher taxes withheld.

      1. JB*

        You are right. The larger your bonus, the more is withheld, and the larger your tax refund, so by the time you file your taxes it works out to exactly the same.

      2. Steve*

        They actually have a choice between the paycheck method and withholding a flat amount, but the flat amount is something like 25% (not sure if that was changed by the recent tax changes) which is probably higher than the average person’s tax bracket.

    3. CAA*

      That is not how the U.S. income tax works. It’s true that your company is required to withhold more from a bonus, but it all gets trued up when you file your tax returns for that year. You either get it back as a refund or you have a lower amount that you owe. If you earn $0 salary and $50K bonus, in the end you will pay exactly the same amount of tax as someone who earns a $50K salary and $0 bonus.

      1. Cat Herder*

        You get it back eventually, but you lose the amount you could have earned if you had invested it. If I’m sticking the bonus in my retirement account for instance, the withheld amount will not be earning any money until I get it back and put it into the account. Also, I have been dinged with fines for not having close to the right amount withheld, and then had to make quarterly estimated payments for the next year. It’s a giant PITA all around. It would have to be a seriously large bonus to be worth all of these problems.

  9. NinjaForToday*

    Bonuses/commission is also taxed at a higher rate (at least where I am, not sure if that’s state or federal – I’d have to look again) so $1000 bonus is less money in your pocket than $1000 raise.

    1. CAA*

      See above. While it’s true that you will have less in your pocket right now, you will have exactly the same amount after you file your tax returns as if the bonus had been paid out as salary.

      1. Hair Splitter*

        Except the government doesn’t pay you interest on refund they “borrowed” from you, whereas it’s possible for you to earn interest on any amount you keep until taxes are due. So you don’t have “exactly the same amount.” I’d rather have my $1,000 bonus earning .01% interest and pay the IRS on April 15 than loan my $1,000 interest free to the government.

        1. Natalie*

          You can always adjust your withholding mid year to get that dollar of interest.

          In my experience most people would end up spending the $1,000 if they get it spread out over 26 paychecks, so for them it’s definitely worth the dollar to just let the IRS hold onto it.

          1. Hair splitter*

            Except if you add that money to the rest of your savings/investments you’ll earn more than $1 in interest. Regardless even $1 in interest is more than what you’ll get from the government…

        2. 90% Snark By Weight*

          I’d rather have the extra $1000 today to invest in Apple/3M/Berkshire Hathaway or even just stuff it into an index fund than give the Infernal Revenue an interest-free loan.

  10. Q without U*

    Also, if you are in the U.S., bonuses are taxed at a *much* higher rate than salary. Bonuses last year were taxed at 25%, which is a huge chunk if you’re depending on that as part of your income.

    1. JB*

      Not true. All income is put in the same pot when you file your taxes.

      They withhold more from your bonus, but you get it back in the form of a higher tax refund when you file.

  11. DCGirl*

    I left my last job because I had allegedly topped out of my salary range and all I would ever get going forward would be one-time annual checks. They were astounded that I sited this as a reason for leaving in my exit interview.

    1. 653-CXK*

      They did it at my ExJob too. If you reached the maximum of your salary level, unless and until you moved to another position at a higher level, all you would receive is a bonus, not a merit increase.

  12. DivineMissL*

    Not sure how this works in the private sector, but as a government employee, my pension is calculated on my base salary, not on any additional stipends or overtime I earn. It’s to my advantage to try to increase my base salary as much as possible before retirement so my monthly pension payment is higher. My stipends and such add about $10k to my annual income, but that won’t be counted when it comes time to figure out my retirement benefits.

    1. CAA*

      Well, most people in the private sector don’t have pensions any more, and if they do, they’re unionized and this would never fly, so it’s less of an issue than it would be in government.

    2. Ali G*

      In the private sector (in the US) the analogous thing would be your social security wages. So if your salary doesn’t increase over time, then your contributions to SS don’t either, which in turn makes you eligible for less benefits when you retire.
      This is a bad idea all around.

      1. Steve*

        Regular bonuses do get included in your social security wage base (though, in the year they are paid, not in the year they are earned, if that matters.)

        1. Natalie*

          Although some places don’t withhold 401k contributions from bonuses, that could make a difference if your contributions are not tax deferred or if you receive matching contributions.

    3. I'd Rather Not Say*

      I’m a state employee at the top of my pay range so instead of getting a raise, I get a “stipend” added to each check of whatever percent raises were given that year (everyone gets the same). Because this varies year to year (might be 5% one year, 3% another), my pay actually goes down some years. This will also affect my pension as it’s calculated on a similar basis. Even though they periodically increase the ranges, it seems to always keep people in this situation. For example, I’m currently 20 cents over my range. It’s demoralizing, and it sounds like this could be the case with this bonus system if the company’s profits aren’t up every year. Also, in our case, we pay a percentage of our salary into the pension system, rather than social security, so it’s a big deal, amounting to a large portion of our retirement.

    4. Cat Herder*

      In addition, your employer may be contributing a percentage of your salary as well. For instance, as an employee of my state, my retirement fund (not a pension) contributions are a percentage of my salary deducted monthly, plus a percentage contributed on top of that by my employer (the state). One of our better benefits.

  13. Sarcastic Fringehead*

    My company matches my 401(k) contributions up to 6% of my salary; if my salary never went up, neither would the amount they match (or the amount I contribute, actually, since it’s so much easier to send x% there every paycheck than do a lump contribution at bonus time).

    1. JB*


      My company also matches the same percentage of the bonus. So someone making $50k with a $5k bonus gets the same 401k match contribution as someone making $55k no bonus.

      It’d be odd to match salary and not bonus, and that’d be another instance of nickel-and-diming chicanery.

      1. CMart*

        This made me curious so I just went to look at my pay stub from my bonus this prior year– no 401K contribution or match withheld from it.

        However, I don’t know if perhaps there is a way to request some of it be contributed (and therefore matched). Something new to look into!

        1. anycat*

          at a prior company i worked at our deferrals were different for our bonus and our normal paychecks.

          also, it may depend on what your company considers 401K eligible compensation.

      2. Steve*

        My bonus is automatically included in the 401(k) plan, both my contribution and the employer match.

      3. Sarcastic Fringehead*

        That’s a good point that I hadn’t considered, since we don’t have bonuses. Another mark in the “this will be okay if they do it right” column, I suppose.

      4. Judy (since 2010)*

        My company allows a different contribution percent from the bonus. You can contribute up to your maximum yearly into the 401k from your bonus. It’s certainly to your benefit to contribute your 6%, that gets you the company max match.

      5. NW Mossy*

        Employers can decide whether or not bonuses are considered as “eligible compensation” for their retirement plan. If they decide not to include them, they have additional requirements to prove mathematically (on an annual basis) that this exclusion doesn’t favor highly-compensated employees over non-highly-compensated employees. This decision can also be made on a “source basis,” meaning that the employer could choose to let you defer some/all of your bonus but not include the bonus amount when calculating your match.

        As others have noted, employers also vary about what they do with your 401(k) contribution amount on a bonus. Some will automatically apply whatever rate you have withheld for regular pay (say, 5%) to your bonus. Some will automatically withhold nothing unless you tell them to withhold. Some will prompt you to decide before bonuses are paid.

        If you want to know what your employer does, consult your Summary Plan Description – you can normally get it online through your 401(k) vendor and/or through your HR department. It’ll explain in detail (more than you want, probably) exactly how this stuff works for your employer’s plan.

    2. Nacho*

      Same for my current and last job. Isn’t that how most companies do it? Not necessarily up to 6%, but matching a % of your salary.

  14. Guacamole Bob*

    My first job out of college, I was paid something like $25k in salary and got $10k in bonus for an entry-level admin job. It was insane – it was a financial services firm that had kept salaries flat and just increased bonuses for quite a few years in the stock run-up in the 90’s, and then had more flexibility to scale back the bonuses when the market turned without touching salaries. It made sense in that kind of firm for executive and sales staff compensation to be largely bonus based, and the financial consultants themselves were commission based, but it had carried way too far down into the ranks of regular office staff.

    I was lucky that in my department bonuses were paid quarterly instead of annually, but it was still totally weird that an admin would make 40% of their total compensation in discretionary bonus. It worked out well for me because I rocked that job and my boss loved me, so I ended up with more than the stated bonus range pretty quickly. But it was still really terrible from a cash flow and planning perspective for a low level employee.

    After I’d been there a couple of years they got a new HR director and went through a peer salary review, bumped everyone’s salaries up to a normal level and made bonuses much smaller – I think it was more like $1,000/year by the time I left.

  15. doreen*

    Bonuses aren’t taxed at a higher rate- they are often withheld at a higher rate because withholding assumes that each paycheck is for the same amount, so when you get that $10K bonus, taxes get withheld as if every paycheck was $10K. But when you file your tax return, the actual amount of tax you owe is going to be the same for a given income- it doesn’t matter if you got $50K divided evenly over 26 paychecks or a $10K check and $40K divided over 25 paychecks.

    it’s not uncommon for people who know they are going to get a large lump sum ( bonus, paying out accrued leave, retroactive raises, etc) to adjust their withholding for that check to avoid this overwithholding.

    1. Bea*

      Yep. If you withhold appropriately for say 60k instead of your base of 50k, you don’t owe any more taxes than you regularly would. This along with the myth that OT just -goes to higher taxes- or will push you into a new bracket stresses me out. Claim the correct exemptions and you’re fine at any amount of wages.

  16. voyager1*

    Okay reading over the comments and AAM response I am not sure if I agree or disagree. But I do disagree with pushing back in general. You push back on this it will look poorly on you. Basically you are too good for extra money, plenty of folks not as privledged who would love some extra cash is how it will be seen by higher ups.

    I do agree that it is a possible way to keep salaries low… perhaps.

    In the end take the money, invest it and not blow it would be my advice to you since you are looking to the future.

    I have been in the position of being topped out in my salary and left acompany (said company did bonuses like this). I made sure to leave after the bonus was awarded.

    So I do understand your frustration, just don’t push back on this. Not worth the harm it will do.

    1. Dragoning*

      I have no idea how you came to the conclusion that pushing back on this will make OP look entitled and cause harm. It might not work but I don’t understand how it would make someone look “too good for extra money.” The problem is that OP doesn’t think they’ll make as much!

    2. Kate R*

      I disagree with this. I think not pushing back will do more harm to the OP than pushing back. This could potentially be a huge financial hit for the OP. Employers are a lot more willing to cut back on bonuses than they are on salaries, which means OP could be making less one year than they did the previous. Depending on how they handle retirement benefits, if they have any, those contributions might just be coming from base salary rather than base + bonus. Also, taxes from bonuses are withheld had a much higher rate than regular salary, and even if you get that money back come tax season, that’s time it wasn’t sitting in your own investments accruing interest. Finally, basing them on tenure rather than merit is just all sorts of bad. That’s how you maintain a mediocre workforce while your stellar employees find some place they’re actually valued.

      We all work for money, and any company that reacts to reasonable concerns about a new financial compensation structure with, “Well this employee is just greedy and lots of people would be happy with the extra cash” is TOXIC. I agree that it’s a risk for the OP because some companies are toxic, so if she can get others to push back with her, that would be better. But if that’s their reaction, she should be jumping ship anyway. I absolutely disagree that the answer is just take the money and be quiet. That’s the type of attitude that allows employers to continue to take advantage of employees.

      1. voyager1*

        Oh I agree I wouldn’t work somewhere like this either. Once I top out on a salary I am looking for something better :)

        I just don’t think the job risk to the LW is worth it. A system like this with bonuses like you said rewards seniority over quality, I am betting that is who the management is… senior people and they probably like this bonus structure.

    3. AMPG*

      As someone who pushed back on this successfully, I completely disagree. My case was a little different because it wasn’t a company-wide policy being proposed, which made it a little easier, but I still was very upfront about it and suffered no repercussions. Essentially, at my annual review my boss asked if I preferred a salary increase or a bonus, and I said, obviously a salary increase. He said he wasn’t sure he could do that, and I said, at least give me an increase that keeps pace with inflation and if you want to make up the difference with a bonus, I can understand that. In the end he gave me the full amount as salary, which made me very happy.

      1. voyager1*

        No offense but your example is A LOT different. Sounds like your situation worked out well though which is good.

  17. doingmyjob*

    My biggest concern is that the company does not have to be transparent about how they are calculating the bonus and how profitable the company actually is. It’s pretty difficult to know if they are playing fair with your bonus.

  18. Bea*

    I worked too long with minimal sporadic raises but consistent bonuses to know it’s a bad set up. I would be looking for a new job at this stage in life. I’m finally at the spot where I get at least a COLA and standard bonus barring complete financial devastation. Being in accounting, I’ll see it coming if my bonus will be suffering at least. I feel terrible for folks in the dark about the true financial health of their employer. There’s too much leeway to get screwed out of your hard earned compensation this way.

  19. Chaordic One*

    Back at Dysfunctional Teapots, Ltd. they made a big deal out of profit sharing bonuses, but it was a bad deal for a lot of people. The bonuses were only paid to people who had worked there for at least six months during the fiscal year. Guess when they did the bulk of their hiring? The day after the halfway point in the fiscal year. This way most of the new hires would not qualify.

    They also did not give bonuses to people who had worked for the entire fiscal year, but who quit before the bonuses were awarded (usually about 2 to 3 months after the end of the fiscal year). Lastly, it was common for them to wait until the day before the bonuses were awarded to fire people, so then those people didn’t get bonuses either.

    Bonuses in lieu of decent raises are never a good idea. There are too many things that can go wrong to deny them to the people who should get them and too many instances where don’t work out well.

    1. Manders*

      Yeah, I’m not a fan of this kind of bonus structure, and one of my biggest issues with it is how much it can mess with the normal flow of people entering and leaving a company.

      I once worked for a law firm that was known for going all out with Christmas gifts and bonuses. I ended up timing my job search so I started hunting right after Christmas, and when I ran into a former coworker after I left, she told me that a big chunk of the office was sticking it out until the holiday blowout but planned to leave immediately after that. The company was already structured in a way that put too much work on the paralegals and legal assistants; even one leaving could throw a lot of cases into disarray, so having multiple employees leave at once would really have been rough to recover from.

    2. Genny*

      This is ultimately where I come down on it too. There are just too many ways for a company to manipulate this to their advantage. Even an otherwise decent employer could end up messing with the system as they try to work out the kinks.

  20. Nita*

    Hard to say how this works out without crunching the actual numbers, but a couple of things – if you leave the company in the middle of the year, you don’t get the bonus for that year… And even if the base salary + bonus works out to the same number as base salary + raise in the end, that money is only getting to you in the end of the year after it sits in the company’s bank making interest for them, not for you. You cannot get a jump on investing it, you cannot use it if you have unexpected expenses mid-year, and you have to be in a financial position where it doesn’t really matter to you if you get it now or later (which many people are not).

    I suppose that if OP is part of the discussion in some way, they have some standing to push back. The best way would probably be to bring their concerns to whoever is sharing these ideas with them.

  21. Johan*

    I will just say that even Wall Street’s famous bonuses are not in lieu of base salary raises. They are in addition to merit raises.

  22. Laurelma__01!*

    I work for the state. No raises this year, but they are talking about a 2% one time bonus.

  23. Argh!*

    Don’t assume a raise in base salary is any kind of a guarantee. I’m currently working at 2/3 of my former salary because the top people decided there were too many middle people making too much money. I was laid off with a lot of others, and our positions were taken by people with half the education working for half the pay.

    Annual bonuses that you put into your IRA rather than blow on a cruise could be a better deal. It all depends on the situation.

    Merit raises are the absolute worst, and I am stuck with a merit system. Someone who does outstanding work in 2017 gets a $5,000 raise (vs. my puny raise) … and they get that $5,000 every year for the rest of their work life here, even if they rest on their laurels and do a crappy job all those years.

    1. Mirve*

      My company is evidently using a bonus for the “how you did this year vs your goals”, and raises are supposed to reflect increased skills (i.e. ongoing increased value).
      Sounds reasonable in theory, but not sure how it will work in practice.
      In theory, it means that you don’t end up rewarding someone forever for a single good year/project/etc.

      1. Argh!*

        That seems like a good middle position. The boss’s pets will get the best bonuses, but at least everyone gets something.

  24. Leela*

    This is a good way to lose quality employees. They might think this is saving them money but it’s very shortsighted, the loss of high performers with lots of experience to replace, combined with the turnover this is likely to cause, is going to be incredibly costly in the long run.

    Not to mention if they’re straightforward about this in the interview process, it’s going to be difficult to attract people with other options at all, I can see myself taking this out of only out of desperation and then continuing my job search

    1. Argh!*

      Most people won’t ask about this in an interview, and employers who are trying to cut corners won’t volunteer it. They can expect to have at least a few positions turn into revolving doors.

    2. AdminX2*

      I think mine is the exception based mainly on hugeness of size and longevity in the industry. They get away with tolerably low salary and compensate with premium benefits and super special fancy bonuses that people go ga-ga for. I think over time they tend to get a ton of just at or above average types as the ones who are super stars prove it here then move on to better.

  25. PieInTheBlueSky*

    The cost of almost everything goes up every year — food, rent, transportation, and (at least in the US) health care. Employees on this raiseless salary system will be stretching their paychecks farther and farther each year hoping to make it to bonus time where they may get enough to get a surplus for the year, or to climb out of the hole that the rest of the year put them in. It doesn’t seem sustainable over a long period of time.

  26. Rusty Shackelford*

    A raise in base salary may not be a guarantee, but employers are a lot more likely to discontinue a bonus than they are to implement a wage cut.

  27. Argh!*

    I had something like that years ago, and I liked it (Of course I got bonuses, so I may be biased).

    My current crappy system doesn’t reward incremental improvements, which translates into everybody being stuck in the category their boss sticks them in. I have had some very productive years that were not at all appreciated. It’s demoralizing, but the upside is I can screw around without losing much if anything. Yeah, a great system.

  28. LeRainDrop*

    This method stinks! Another downside is that you have to actually still work for the employer come bonus time to actually receive the benefit. It’s annoying enough to feel like you have to stick around for a true annual bonus, but to now also have to do that just to make up for the lacking salary increase? Hmm, no, not cool.

    1. AdAgencyChick*

      YES. Even worse if the employer decides to distribute any bonuses over a longer period than one lump sum, as an old employer did once. So, not only did you have to be employed on the date of bonus announcements to get anything at all, you’d receive only 1/3 of your bonus at that time, the next 1/3 a year later, and the last 1/3 a year after that!

      Once that policy was announced (bonuses used to be lump sums), I immediately decided that there was no such thing as a bonus for the purposes of deciding whether I wanted to work elsewhere.

  29. Becky*

    How do others feel about this? Something Alison didn’t mention here but often suggests in situations like this: push back as a group! If a significant number of people express the same concerns it might have a better outcome then a single voice.

  30. Stinky Socks*

    Depending on how calculations are made, it can also discourage people from using leave they are entitled to. A SAHM friend with hyperemesis gravidarum was trying to juggle things with her husband taking bits of medical leave as needed to care for her. Because his bonus was such a huge part of their annual income, and the bonus was only calculated on regular salaried hours, and excluded leave hours, it definitely discouraged them from taking the full time the family needed to function well.

  31. Anon today*

    If you’re fairly new to the company, you probably don’t like it. If there are people who’ve been with the company for several years, they may love the idea; their salary may be maxed out and they’ll be better off with this system.
    You might be pushing back on this idea, OP, but there may be several other employees who love the idea, so you might consider that when you decided to oppose the bonus system.
    Some companies value tenure and–despite several comments that disagree–experience can certainly be worth more money.

  32. mark132*

    Even if I did end up making more money under a scheme like this, I probably would still prefer raises vs bonuses. I have a family to feed, and I would prefer a stable income. (FTR, I actually doubt either long term or short term for that matter, that you would end up making more money with a bonus schema on average).

  33. Cucumberzucchini*

    I think profit sharing is a great way to help employees see how the work they do supports the overall profitability of the company and look to be more efficient in their individual contributions, more so than raises. But I think you should still give raises. I do bonuses for my staff when we have good months to reward them for hard work. But I also still give raises on top of that. I give end of year bonuses in addition to periodic bonuses.

  34. Glad I’m Gone*

    My old company tried this. Talking up bonuses like it was some amazing money boost that we would all be grateful for in the long run. The blank looks they got in return after giving us this “fantastic” news pretty much told them everything they needed to know.

  35. The Pink Lady*

    Giving bonuses based on tenure is terribly shortsighted and is a great way to ensure all your most able performers fly as soon as they can, and you’re left with a mediocre workforce for whom holding on as long as they can is their primary goal, rather than being stellar performers.

    I’d be fuming at this – not only does it lack the security of a salary increase, which is locked in, but for me, would jeopardise the level of my pension, which will be based on career average earnings, exclusive of bonuses. My organisation is an arm’s length government body, so we have suffered under UK austerity measures, but my salary has still moved up annually, as have all staff; and they have recognised the value of small bonuses to reward high performance, and ensured these are still available despite the lack of funding in general. The OPs firm seems not to understand the importance of rewarding high performers to encourage everyone to up their game.

    Are others similarly disgruntled? I’d suggest that a cogently-argued case against this system could be usefully presented to the management by as large a group as possible to get the best chance of seeing change. Would it be possible to work together as a group to fight it?

  36. C*

    I’ve had two (non-profit) employers do something like this. At the last one, they did it just to our department (not the whole organization), and sold it as “a special, one-time bonus for you guys – don’t tell others about it because we don’t want them to be jealous.” And they were meager bonuses, and fully in lieu of basic COL raises. I was appalled. I was also shocked that their marketing worked on many of my colleagues, who were so excited at the idea of getting a special bonus.

    Aligning with Alison’s advice, I did not push back on this particular issue because I was fighting other battles with management at the time. The bonus vs. raise thing was a symptom of those larger issues. Instead, I worked to gently open eyes among the team about the implications of this decision by the organization (the issues that Alison outlined), because I felt the messaging was so duplicitous.

    Had it been a blanket policy going forward, like the LW’s org, I think I would have pushed back more because it is really problematic in the long-term for all of Alison’s reasons.

  37. Melinda*

    I would seriously start job searching if my current company started doing this and pushing back didn’t work. It’s not a good sign generally about this company because of what it implies about how they value employees, and that’s in addition to the concrete negatives. Plus it would make me wonder if this is happening because they are having serious financial problems.

    1. Leela*

      Agreed. Even if they caved to the pushback, this isn’t usually decided by a company that is both financially healthy and competent, and it’s a very bad red flag, even if nothing comes of it beyond that.

  38. Kat in VA*

    Bonuses don’t pay the monthly bills. Raises do. And since everything costs more, I’d rather have a regular yearly raise, even if it’s small, in an attempt to offset at least some of the cost of inflation, versus a lump sum bonus once a year.

    Also, as mentioned, bonuses are something that can be delayed, reduce, or flat-out not given at all – at any time, for any reason. Much harder to claw back raises.

  39. Safely Retired*

    “Basically, the base bonus (which is based on how well the company does that year) …”

    And when the company has a bad year, what happens? No bonus? No, that isn’t a substitute for a raise, it is a company that wants it all their way, employees be d*mned.

  40. Phil*

    My company gives a percentage raise each year, based on how well the employee performed (usually between 1-3%; the amount the managers can allocate is based on how well the business performed that year, and then they allocate to their team based on each employee’s performance), and then on top of that, everyone gets a one off bonus each year based on how many goals the business as a whole met (so long as the employee got at least On Target in their annual review and have been in the company for at least six months).

    I like my company.

  41. Mochaccino*

    2 important things that I don’t think I saw anyone mentioned (apologies if I missed it!!). I thought about these a lot at OldJob where I was told during interviews that they paid “market rate with a heavier emphasis on bonus than the market.” I later learned that meant, a. they underpaid me in base pay, but b. did give me a big bonus at the end of the year which made up to be closer to market pay. The bonus did have a merit component, but it also could fluctuate wildly based on how the firm did that year. And then I later found out that they didn’t do annual raises. Because of all that, I had to have a lot of conversations about my compensation which made me think a lot about:
    1. I was non-exempt, so all that overtime I worked throughout the year was paid way at under-market rate. The bonus only got me up to what my BASE pay would be at market rate, but didn’t make up for the OT that should have been market rate. I raised this with OldJob and it took a while for them to understand this. This was really big for me because I worked a lot of overtime, but maybe not relevant for OP.
    2. I’m pretty sure that most disability payments and unemployment insurance are based on whatever your salary/base pay is (and usually exclude any bonus from the calculation). This one I didn’t bring up to my job because it kind of seemed irrelevant/inappropriate? Like basing an argument about what would happen if I was out from work or they chose to let me go.

  42. designbot*

    I’ve worked for a company that relied heavily on bonuses as part of compensation, and while I think most of the issues have been covered elsewhere one of them hasn’t. Your base compensation is what is counted towards your qualifications for a mortgage, a car loan, your overall financial fitness. Lenders (rightly) regard bonuses as something that can go away at any time. Additionally, if you need this money to, for example, pay your student loans, even if you get the same amount you’ll be worse off because the loans will be building up interest and late fees all year, and by the time you have the money at the end of the year to pay a big lump sum you’re so far behind.
    Your financial obligations don’t work on a bonus system, and your pay shouldn’t either.

  43. DeMoralized*

    I was in a similar situation and I did push back. Upward mobility is hard in my organization. Either someone retires/quits or you have to find a new job. They also market the annual COLA as a “merit-based” raise. Annual review comes around and I hear from my managers the wonderful things about my work and how they recommended me for a long-overdue promotion. Later on, I’m called in to the Lead Supervisor’s office to discuss my review. I was excited until she said that, as a reward, she recommended me for a $500 bonus. I expressed my deep appreciation but saw the opportunity to state that I enjoyed my work and team but was curious if we could evaluate my position and hopefully find a path for a promotion within the next year or so. The Director was somewhat flustered (I guess she didn’t think my managers would explain their recommendations to me in their reviews) and her response was “I understand if you need to leave in order to get ahead.” I had never mentioned leaving, only that I wanted to grow in my position and in the organization. It was extremely demoralizing.

  44. SusanIvanova*

    “a lot of employers are only going to care about your base salary”

    Unless they’re in California, where they aren’t allowed to ask.

    Another thing about bonuses – I was out for a month with a broken ankle. FMLA FTW, I got paid. But my bonus for that quarter took a hit because I wasn’t there to do anything bonus-worthy. My manager thought it sucked but he couldn’t do anything about it.

  45. Leah*

    At an old job I had, me and my coworkers were outsourced, and everyone dreamed of being hired by the company we did services for, mainly because of the hefty annual profit sharing bonus they offered. One of my coworkers got hired after I was there for a year, but from what I’d heard he got a huuuge pay cut from his base salary (something much below the market rate) to make up for the hefty annual profit sharing bonus he was now getting. Honestly I never understood how he could accept that. What if the company goes through a bad year and the usual bonus is cut down significantly? A bonus should be just that, a bonus, and not a way to make up for the low salaries people are being paid.

  46. Eliza Jane*

    I started my career at a company that had a 20% bonus pool. For the first two years, I got raises and the full bonus. Then the bonus started shrinking, and the raises dropped significantly. By year 7, I was making less than I did in year 3, and they were promising bonuses, then going back on their word. Don’t trust bonuses, and don’t ever rely on them.

  47. GreenDoor*

    This is a trick my husband’s company has used. His bonus is the same as everyone else’s – the equivalent of one extra paycheck. So the whole worry about busting your hump all year – but then not getting any more at the end of the year then your slacker co-workers is real. Raises are a joke – they’ve been at about 2% a year for all levels within the organization. Again, not based on how much you contribute or how much output you produce. But they justify a low raise by reminding everyone of that wonderful year end “bonus.”

  48. LV426*

    I didn’t read all of the comments above so if I reiterate something someone else said I apologize but I wanted to state that my company did this on our latest merger. They basically cut our pay and then told us we would get quarterly bonuses based on the performance of the company as a whole. My highest quarterly bonus to date was $200 which was taxed at the bonus rate and not the income rate so I actually lost income.

    When this first rolled out last year they cut our salaries around 2-4% depending on your department then they gave us a bonus structure that meant we would never know how much we could earn because there were no real metrics to go by and the upper management constantly changed. We were told we had the potential to earn up to $5K/year in bonuses (this was my rate, others were able to earn more based on their bonus structure).

    Our first quarter they only paid us 20% of the total bonus we could have earned because the company didn’t meet their metrics. But my department had the highest rate of revenue and of that revenue 80% of it was generated by me. I worked my butt off to get my customers installed and off to billing in that quarter and exceeded the expectations of revenue for that quarter. When I took that to my manager he said to just save my piddly “bonus” for a car payment or other bill because even if I met the same metrics and goals on my own that unless the company made the metrics (which again are still undefined), we wouldn’t get the full bonus next quarter.

    So then I went to my manager and said well if I’m performing above the members of my team and handling 80% more accounts than they are then I would like to have my salary adjusted because I’m not making even market level for my position and now I’m not getting bonuses and I was told that the company doesn’t believe in raises, they want everyone to work and focus on the bonuses. You can imagine what my response wanted to be but I bit my tongue and then went back and pulled all of my stats and formed a plan. I then arranged a meeting with my manager and his manager and laid out everything I was doing and compared it to members of the department over 7 states and showed them that I was doing more than everyone else and I had the highest revenue of installs every month. Then I proposed that they take away my bonuses and give me the higher salary and I would forgo getting any yearly or quarterly bonus at all. I also let them know that this was really my final offer and that I was ready to walk if they didn’t do this. I framed it in a way that basically I told them that I wasn’t able to pay my bills and keep a roof over my head if I didn’t get this and I would have no choice but to go find another job (and I had a potential job lined up). They went back and got the approval for a salary increase and then a decrease in my percentage of bonuses.

    Overall it’s a crappy way to run a company. It’s a good way for them to cut corners and underpay employees and it’s ridiculous that I see our CEOs and upper management giving themselves a giant paycheck but they refuse to give us living wages. You may want to look for another job just in case.

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