Survey: Employers trim discretionary bonuses

Despite low unemployment, employer payrolls are expected to increase only 3% in 2018, according to recent surveys by the Willis Towers Watson consulting firm and the WorldatWork compensation association. That’s in line with pay raises employers have been handing out for the last several years.

What is changing, however, is how employers are paying workers. A new survey by HR consulting firm Aon Hewitt found employers suddenly shunning the discretionary bonuses favored during the Great Recession and its subsequent recovery.

Discretionary wages such as merit pay and annual bonuses became popular in uncertain economic times because employers could easily cancel them. Unlike higher regular wages, employers could pay the bonuses in flush times and cut them when times were hard.

Aon Hewitt found employers planning to spend 12.5% of payroll on discretionary bonuses, the lowest since 2010.

Declining discretionary pay is not being offset in base wages, though. Three percent seems to be the new normal for boosting straight pay.

A look inside the discretionary pay cutbacks shows employers also plan to bonus a smaller portion of their workforce. High performers can expect to do well, but midrange employees won’t see merit pay or bonuses. In all, employers are looking to reward exceptional employees and gambling that meager raises will be enough to retain the rest—or attract replacements.

Caution: That strategy could embolden restive unions looking for new workplaces to organize. Follow these tips:

• When making compensation plans, weigh potential turnover costs against slow payroll growth.

• Avoid pay discrimination claims by basing discretionary bonuses on objective criteria.

• Remember that discretionary bonuses paid to nonexempt employees must be included in base pay for overtime purposes.