Year-end bonus checks become fewer, smaller

By the time executive John Stropki stepped to the podium, more than 200 employees of Lincoln Electric Holdings had crowded into the company cafeteria to hear him. Hundreds more gathered in an on-site auditorium and at a Lincoln plant a few miles away to listen via closed-circuit.

The much-awaited news? Lincoln was again paying profit-sharing bonuses, a December tradition at the Euclid, Ohio, manufacturer for 70 years running. But while the checks averaged a much-treasured $10,800 a worker, that is nearly $1,000 less than a year ago.

In coming weeks, workers at many other companies will be finding out what those at Lincoln learned Dec. 12 — the economy may be improving, but don’t count on a bigger annual bonus.

Many employers are scaling back annual incentive payments to workers this year and some are eliminating across-the-board holiday bonuses, compensation experts say.

The chill in year-end bonuses partly reflects companies’ continued concerns about the economy and their own earnings, despite a rebound in corporate profits. After several years of limiting salary and wage increases and shifting benefit costs to employees, some companies are now looking to bonuses for cost-savings.

But it also is part of a long-term change, pronounced since the mid-1990s, analysts say. More companies are canning the set bonuses they believe workers take for granted in favor of variable "pay-for-performance" plans that pay smaller rewards when times are tight.

Companies are spending 8.8 percent of their payrolls on incentive bonuses this year, down from 10.5 percent last year and the lowest figures in five years, according to a survey of about 400 firms by personnel consultant Hewitt Associates.

"That’s a dramatic shift," said Ken Abosch, who heads Hewitt’s talent consulting business. "I think the year turned out to be a lot tougher than anyone expected."

About a third of firms are reducing annual incentive bonuses this year and another 4 in 10 are holding spending even with 2002, according to a recent survey by Mercer Human Resources Consulting. Only a quarter of the more 500 firms surveyed said they were increasing bonuses to reward worker performance.

Nearly two-thirds of the companies surveyed by Hewitt said they are not paying holiday bonuses this year, about the same as last year. Many companies never offer an extra year-end payout. But 17 percent of the firms surveyed said they had canceled existing holiday bonus programs, about half during the past three years.

Employees at some companies, particularly those who closed their books earlier in the year, have known the news for some time.

When employees at Bearing Point Inc. checked their computers in July, they found a sobering message from the consulting firm’s chief executive.

"Despite our strongest efforts, our initial projections show we expect cash bonuses for FY03 to be zero," Rand Blazer, who is also chairman of Bearing Point, wrote in a company-wide e-mail.

A Bearing Point spokesman, John Schneidawind, confirmed the contents of the e-mail.

"Last year was a challenging year for us as well as other firms, but as the memo notes, even last year we did reward exceptional performers with raises, if not bonuses," Schneidawind said in an e-mailed response to questions.

There are some notable exceptions to the reductions in bonuses. On Wall Street, where firms are enjoying robust profits on the resurgence in the stock market, executives have told employees they can expect significantly larger annual bonuses.

Wall Street firms will pay $10.7 billion in bonuses this year, up 25 percent from the 8.6 billion paid to workers in 2002, according to an estimate this week by the New York State Comptroller’s office.

Even at companies paying larger bonuses, the focus is on rewarding employees for corporate and individual performance rather than across-the-board holiday bonuses designed as a "thank you."