Welcome to the One-Time Bonus Economy, Where Your Pay Doesn’t Go Up

Welcome to the One-Time Bonus Economy, Where Your Pay Doesn’t Go Up

The new trend of companies rewarding employees more often with one-time bonuses and less often with permanent pay increases has drawn greater attention in the aftermath of the Trump tax cuts, as corporations have made flashy announcements about how they are delivering one-off rewards to employees (though not all employees).

The New York Times had a front-page story on Sunday entitled “What Happened to Your Raise? It Could Have Become a Bonus.”

As economics reporter Patricia Cohen writes, “Ordinarily, the jobless rate and wage growth are like two ends of a seesaw: When one drops, the other is supposed to rise. But that link seems broken, and like film-noir detectives, analysts have scrutinized hard-edge statistics and fuzzier psychological indicators for clues about why.”

Part of the reason is that companies are opting to spend less of their profits on higher regular employee paychecks and more on one-time bonuses that, as we’ve seen recently, make for savvy public relations. According to a Times analysis of a survey by Aon Hewitt, a human resources consulting firm, spending on bonuses amounted to an average of 3.1 percent of total compensation budgets in 1991, but by 2017, that share rose to 12.7 percent. Meanwhile, the share dedicated to permanent raises fell from 5 percent to just 2.9 percent.

The average worker’s pay has remained stagnant for the past few decades. The shift to a bonus-based economy is part of a larger effort by business leaders to cut labor costs down to the bone. Bonuses, of course, are welcome news for many workers—but not if they’re coming at the expense of a sustained pay bump. 

Permanent salary increases mean higher fixed costs—and slimmer profit margins. One-time bonuses, with no guarantees, are cheaper. As is the outsourcing, union-busting, contracting, on-demanding, and part-timing of the American workforce. That is what is keeping wages low even in a very tight labor market.

The problem is not that corporations don’t have the money to invest in their workforce. It’s that they’re just choosing to plow it all back to the shareholders and CEOs. A recent analysis found that S&P 500 companies have promised $3.7 billion in one-time bonuses and announced more than $157 billion in stock buybacks.

The problem is that even with what many economists say is close to full employment, a tight labor market is apparently not a strong enough countervailing force for sustained pay increases over skimpy one-time bonuses. At one point, unions were that force.