Bonus or No, Don’t Get Your Hopes Up for a Raise

(Bloomberg) -- No, those much-publicized employee bonuses don't mean you should expect a raise this year.

The White House has long said that corporate tax cuts will trickle down to American workers and pad their paychecks. Then, as if on cue, just as Congress passed a bill to enact them, a handful of companies announced employee bonuses they said were proof of that.

But those one-time bumps, whatever really precipitated them, don't mean higher wages are around the corner. Even the White House said it could take eight years for the cuts to boost wages much. And for now, employers are in no hurry to raise them. 

For the past five years straight, employers have reported giving 3 percent raises to most workers—even as the economy has improved, the labor market has tightened, and unemployment has fallen. Only stellar performers get bigger bumps.

This year is no different. Aon's annual survey from last year found the trend was continuing into this year, with most companies still reporting 3 percent raises for 2018.  

“Companies are really hesitant to give raises,” said Paula Harvey, the vice president of human resources at Schulte Building Systems, a building manufacturer near Houston.

Like many companies, Schulte had a good 2017. But despite low local unemployment and the promise of a windfall from the tax law, it doesn't plan to give bigger raises than the standard 3 percent, Harvey said. Instead, employees will get bonuses for their hard work in 2017.

For one thing, the tax overhaul passed Congress too late to affect 2018 compensation budgets. “Companies, at least the ones I've talked to, are still in the process of analyzing the rules and the implications,” said John Bremen, a managing director of human capital at Willis Towers Watson.

But the legislation might not have made a difference anyway. Employers have become attached to that 3 percent raise they've given for the past few years, Bremen said. He doesn't see that changing, not even with the new law.

A tight labor market no longer forces employers to pay workers more, thanks to a combination of factors including the globalization of the labor force, job automation, the decline of unions, and the rise of contract work.

Companies, for their part, say salary bumps are too permanent—too expensive. If times get tough, pay cuts hurt morale and productivity and risk attrition. “When you give a raise, it's stuck in the pay system,” said Harvey. “It is something you're guaranteeing; it's becoming a fixed cost.” 

In recent years, such companies as General Electric Co. have considered chucking the annual pay raise altogether for something “more flexible,” the company told Bloomberg last year. That flexibility often comes in the form of variable pay. Employers can opt for bonuses on a year-by-year basis, and if they have a bad year, they can just forgo it, rather than cut salaries or let workers go.

Companies say they've found that bonuses, since they come in one big sum, are better than annual incremental raises at motivating workers. They also help with recruiting and retention. “Where demand [for talent] is high but supply is low, the bonus is one more way to keep people that you want to keep,” said Dan Ryan, who runs a Nashville-based executive search firm. 

If the tax law rewards any workers, Ryan predicts, it will be those so-called star performers—the same people companies are already plying with bigger raises and bonuses. Employers, he suspects, will use extra funds to attract them and keep them around and happy.

To contact the author of this story: Rebecca Greenfield in New York at rgreenfield@bloomberg.net.

To contact the editor responsible for this story: Samantha Schulz at sschulz17@bloomberg.net, Janet Paskin

©2018 Bloomberg L.P.