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Employers Opt for Bonuses Instead of Raises

Topics: Data & Research

Proponents of the 2017 tax cuts claimed that the legislation would lead employers to boost workers’ pay. So far, that doesn’t seem to have happened.

According to The PayScale Index, which measures the change in wages for employed U.S. workers, pay actually declined 0.9 percent between Q1 and Q2 2018.

Wages dropped in 80 percent of all industries. Real wages – or the value of workers’ pay with inflation taken into account – are worth 9.3 percent less than in 2006.

Do You Know What You're Worth?

Lack of wage growth has stymied economists since the end of the Great Recession. While unemployment is hovering around an 18-year low, wages haven’t caught up. Now, data from the Bureau of Labor Statistics suggests one reason why. Employers appear to be choosing to increase their investment in bonuses and benefits like health insurance and retirement plans instead of offering more cash.

Per Binyamin Appelbaum at The New York Times:

The average worker received 32 percent of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27 percent in 2000, federal data show. The rising cost of health insurance accounts for only about one-third of the trend. And the data do not include the increased prevalence of non-monetary benefits like flexible hours or working from home, or perks like gyms and “summer Fridays.”

A Safer Way to Raise Compensation

“Bonuses and supplemental pay speak to labor market conditions, and workers are in a good spot to get a little more,” said Ryan Sutton, a district president for staffing agency Robert Half, speaking with Te-Ping Chen and Eric Morath at The Wall Street Journal. “Companies are still reluctant to move base wages up too much. It’s a lot harder to take that away than bonuses.”

Most companies calculate raises as a percentage of current pay. By offering bonuses and other benefits and perks instead of raises to base pay, employers are avoiding a commitment to higher payroll costs year to year.

Chen and Morath also pointed out that bonuses are frequently tied to profits, which had been growing even before tax cuts boosted their bottom line.

Finally, variable pay like bonuses and incentives allow employers to use their compensation dollars to attract qualified workers for hard-to-fill positions and retain workers in valuable roles.

For more on how employers use their compensation budgets to attract and retain workers like you, read PayScale’s Compensation Best Practices Report. Or take PayScale’s Salary Survey and get a free report and learn whether you’re being paid fairly.

Tell Us What You Think

Have your wages or benefits increased this year? We want to hear from you. Share your story in the comments or join the conversation on Twitter.

Jen Hubley Luckwaldt
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