The vanishing holiday bonus

"We're seeing the holiday bonuses disappear," says Brian Drum, president of Drum Associates in New York. "Thirty-five years ago, when I first dealt with a lot of companies that used to pay the so-called Christmas bonus, it was a gift. Today, as companies are becoming larger and consolidated, they are giving because it's performance-related." Tying rewards to the performance of the company serves to motivate workers, employment specialists say.

Nowhere is that more evident than on Wall Street. Bonuses are reaching the stratosphere, rising an estimated 10 to 15 percent this year over 2005. Those rewards can average $1.7 million for managing directors of Wall Street banks. For top-tier bankers, they can swell to $20 million or more.

"The financial-services industry has the notoriety of paying the highest bonuses," Mr. Drum says. "They can be multiples of a person's salary. In the more industrial companies ... probably not a lot of bonuses are given out."

Many companies have also changed their fiscal year so it no longer coincides with the calendar year and the holiday season. Some end their year on Nov. 30. for others, it's March 31. "It kind of takes you away from paying a bonus," Drum says.

In a 2005 survey by Hewitt Associates, 59 percent of companies said they would not award holiday bonuses. But more than three-quarters of firms offer performance-based bonuses that must be reearned each year.

Among 1,500 small businesses, 39 percent plan to give employees holiday bonuses this year, according to Constant Contact, an e-mail marketing service for small businesses. That is up 2 percent from last year.

"For small businesses, cash flow and cash management are more difficult issues," says Gail Goodman, CEO of Constant Contact. "It is harder to see out to the future and understand where cash will be next quarter and next year. It takes more confidence for a small business to pay a bonus."

Whatever a company's size, employees are frustrated by a "lack of clarity about how one qualifies for that bonus," says Bill Kuntz, vice president of Princeton One, an outplacement firm. "They want to be treated fairly and have clear expectations."

Many companies do a poor job of communicating with their employees about the direction and goals of the company and that can harm productivity and morale. Especially if you are employed by a company in which it appears that the rewards of the hard work of the company are not shared by all.

Still, Bob Kustka, president of CHR Partners, a human resources consulting firm in Norwell, Mass., expects changes: "Bonuses are going to come back into vogue in the next few years as the war for talent heats up," he says. "The new workers entering the workforce, the millennials, will be harder to keep. They don't have the same level of loyalty [that] previous generations had. Therefore organizations will be looking for innovative ways to keep those workers." Already he sees gaps in accounting, engineering, and nursing.

Mr. Kustka notes another factor that could strengthen bonuses: the need to redistribute profits. "A lot of people are critical that CEO pay has risen between 300 percent and 400 percent. How do you justify that, when the average worker over the past 20 years has seen a decline in earning power and CEOs have seen immense growth in their earning power?"