Your Bonus Might Be Smaller This Year in Tighter Job Market

Employers in the US have been cutting back on bonuses for their employees, indicating a shift in their approach to talent retention. The average cash bonus paid to workers last month was reported to be $2,145, marking a 21% decrease from the previous year, based on data from payroll software company Gusto. This decline was observed across all industries, ranging from 3.8% for technology firms to a significant 36% for tourism and transportation companies. Additionally, fewer employees across most industries received bonuses, with 16 out of 22 sectors experiencing a decrease in the percentage of workers receiving any form of bonus. This trend was most pronounced for arts and entertainment firms, with a 6.9% drop in the number of workers receiving bonuses from 2021 to 2023.

The decrease in bonuses has been noted in industries where there have been ongoing discussions about challenges in attracting talent, such as food and beverage, health care, and retail. This unexpected decline in bonuses for these specific sectors has raised concerns, as it contrasts with the anticipated difficulties in talent acquisition.  

Year-End Bonuses Plummet as Labor Market Softens

Even sectors like health care and retail saw lower payouts

Source: Gusto

Note: Figures are cash-only bonuses paid in December at more than 300,000 US small businesses.

Several factors drove the double-digit decline, Wilke said. Businesses are not hiring as aggressively as they were a year ago, according to data from the Federal Reserve Bank of St. Louis. Fueled by soaring inflation and workers quitting at a record clip, businesses doled out more generous compensation packages over the past two years, so there’s less money in those coffers now. The rate at which workers voluntarily quit ticked down in November to the lowest since September 2020. With workers less confident in their ability to find other jobs, employers are less inclined to be as generous come bonus time.

That stinginess was also reflected in a November survey of companies of all sizes by outplacement firm Challenger, Gray & Christmas, which found that 34% of companies didn’t award a bonus in 2023, up from 27% the previous year.

The biggest payouts went to finance workers, many at boutique investment firms, with an average bonus of $13,255, according to Gusto. Still, that’s down about 12% from the roughly $15,000 paid out in 2022 and 2021. The falloff mirrors what workers at Wall Street’s biggest banks will endure this year, as business has slowed and companies like Citigroup Inc. and others pare back expenses, according to projections from compensation consultant Johnson Associates. On Tuesday, Deutsche Bank AG’s Chief Financial Officer James von Moltke said a “difficult market” will be reflected in staffers’ bonuses.

Bonuses in the tech sector dropped, on average, $672 from 2021, when talent was much more scarce. Over the past two years, tech firms of all sizes have slashed more than 265,000 jobs in streamlining efforts, according to Challenger, Grey & Christmas. Cuts have continued in the new year, with Alphabet Inc.’s Google and Inc.’s Twitch unit trimming headcount.

Merit-based salary increases will also see slower growth this year at larger employers, although the raises remain above pre-pandemic levels, data from Aon Plc and Mercer has shown. Companies have greater flexibility to adjust bonuses to respond to changing economic circumstances than they do with salaries, according to Liz Supinski, director of research and insights at WorldatWork, a nonprofit that provides education for human resources professionals.

To be sure, demand for workers is still strong, and unemployment remains low. But “turbulence lurks on the edges,” according to Nick Bunker, economic research director for North America at job site Indeed. “Job gains are clearly slower than this time last year.”

 Workers prioritize their work-life balance over pay when considering their next role, with training in areas like tech and artificial intelligence (AI) also valued, a study by the world's biggest employment agency Randstad (RAND.AS), opens new tab showed on Wednesday.
The annual study found that 57% of workers would not accept a job that would negatively affect their work-life balance, including flexibility like working from home, while 55% would decline if they were not offered significantly higher pay.
Overall, also taking into consideration current roles, work-life balance ranks as highly as pay on workers' list of priorities, with both appearing in 93% of the lists.
AI adoption, which has displaced some jobs and put others at risk, is pushing workers to re-skill. Nearly three-quarters of respondents said they valued in-work training, including in potential roles, with workers in industrial sectors that have been harder hit by automation valuing it more. "If your job would by and large disappear, because AI is taking over 80% of it, then employee and employer need to work on where there is still demand for skills," CEO Sander can't Noordende said in an interview.
He predicted there would still be demand for jobs involving "people working with people" such as in healthcare, hospitality, or public transport. An ageing population in some countries means there will be demand for nurses, he said.
The survey - which covers 27,000 workers across Europe, Asia-Pacific and the Americas - showed that 39% of respondents don't want to progress their careers because they're happy in their roles.
"Talent is rethinking what ambition means, putting work-life balance, flexibility, equity, and skilling at the heart of career decisions," Van't Noordende said in the report.
While 37% of respondents would consider quitting if asked to spend more time in the office, the state of the economy is making some of them cautious about switching jobs.
"You have to listen, and you have to navigate as a company, because you can't afford to lose a third of your people," Van't Noordende said,
While 54% of respondents considered their employer's stance and actions on social and political issues important, 40% of the younger "Gen Z" generation feels their generation is misunderstood by their employer, the study found.

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