You mean that bonuses are the new raises for employees who work in a few narrow white collar fields? Sure. But really, the "new raise" for most of the proletariat is leaving your salaried job which won't give you a raise because "money is tight" (despite record profits) and finding a new job which will pay you %10 more. No loyalty from the employer begets no loyalty from the employee; this labor situation favors the employers, which is why it is so.
If we're talking realistically, there is no "new raise", and the majority of workers (especially hourly workers) don't get substantial bonuses whatsoever. There's yearly wages losing out to inflation and higher cost of living, and a stagnation in wage increases that has gone on for 30 years, on the broad view of things.
The article also mentions an "economic recovery" while failing to mention that labor engagement as a percentage of the population is at a 30 year low even when controlling for demographic factors. It's as though the author is living in a fantasy land where only positive information is taken into account when drafting an article.
I appreciate bonuses for what they are, but salary is always more important to me than a bonus. An offer of $x/yr salary and $b/yr bonus is less valuable to me than $x+n/yr salary, even if n<b and the bonus is characterized as a sure thing.
My budgeting has to be based on my salary, not my bonus, and my monthly budget defines my standard of living. What I can spend on housing, food, and entertainment depends on salary, as does how much I can expect to put in savings every month.
Over the long term, sure, bonuses can contribute to that baseline. They can go into discretionary expenses like vacations, home improvements, new furniture and gadgets, and they can help bolster savings and investments. But depending on bonuses when making long-term financial commitments is more of a risk than I'm willing to make.
And don't even get me started on equity/stock options/etc. That stuff is usually granted in terms that are heavily weighted toward the employer's benefit. Work should be compensated with money, not investment opportunities.
Another angle is that many social security systems and other benefits are tied to your actual salary, not your bonus. This affects unemployment benefits, severance, pensions, etc, and it's easy to forget that during good times.
Also, words are wind, and your employer can claim as much as he likes that your bonus is a super-duper-sure thing, but unlike an actual salary, it can be revoked instantly for no reason, and you have no legal recourse.
How is equity granted in a way that favors employers? I'm curious what you mean.
The caveat I'd add to your first point is... bonuses for me have been an important part of accelerating savings and retirement. I personally do not define my financial success by my month-to-month standard of living but rather by my net worth. And in those terms, a bonus dollars spends the same.
Of course, though, that in the hypothetical case you were offered $10,000 raise or $10,000 bonus, certainly the raise is better. But that's a strawman. A more interesting analysis would be where is the line drawn? Is a 5k raise better than a 10k bonus? I'd probably take the bonus in that case, honestly, because time value of money and all. So where is the line drawn?
Long vesting periods, and the fact that, well, what you get at the end is an investment in your employer. So it's like getting money, except you don't get it for a few years, and someone else invests it for you.
As far as 10k bonus vs. 5k raise, sure: if you're being offered 10k now versus 5k over the next year, and you expect to receive another 10k next year in lieu of the same 5k, then you're coming out ahead. But the case I'm talking about is when you're getting a compensation offer including a bonus, in which case you're choosing between 5k over the next year versus 10k in a year (maybe).
A signing bonus of some sort, where you're receiving an immediate guaranteed payoff (or even a guaranteed payoff at some point in the future), is a completely different beast than a performance bonus as part of a compensation package.
An RSU is no different than cash bonus. It's taxed essentially as cash when it vests so at that moment you can sell all the stock and treat it as cash. In fact, that's what I would advise with RSUs. Options, i think it can be better to hold for a year and see long term cap gains rates.
>An offer of $x/yr salary and $b/yr bonus is less valuable to me than $x+n/yr salary, even if n<b and the bonus is characterized as a sure thing.
In my experience taking the bonus always makes more financial sense.
"No!" you shout in horror, "you're leaving money on the table because salaries compound and bonuses don't!"
Ah, but there's the thing: 10b is surely < 10n, but 3b is almost always > 3n. So while you're getting +n a year, I'm now making $[1.10 ... 1.25]*x/yr because I worked for 2-3 years and then found a new job.
Employers switching to bonuses gives a strong incentive for employees to try to secure raises by quitting (or threatening to quit). This strikes me as ridiculously counterproductive, but hey, that's how it seems to work, so you might as well ride the wave!
All of that assumes that the bonus is actually paid.
There are two cases where this isn't an issue: when the bonus is literally guaranteed (which tends only to be true of signing bonuses), or when the bonus is contingent on objective criteria you control, such as completing a particular project, or selling a certain number of accounts.
Otherwise, a bonus is based on some combination of company performance (which is probably out of your control) and management whim. If management expects to issue the bonus every year, there's no rational cause to offer a larger bonus rather than a salary increase.
They simply ask what is your previous salary and offer a 5-25% increase. You skills are simply a pre-requisite, but they don't define your starting salary. Depending on your risk appetite and potential background checks one can lie and get a fairer deal (the firm is always protected since they have a notice period).
Which is why I don't get people staying at their current job if the company simply match the offer, especially for a company that never gives raise otherwise.
Looking for jobs, going to interviews, negotiating, it takes time and energy.
Scheduled cash bonuses and multi-year stock vesting schedules are a great way to retain employees who don't want to work for you anymore. I have no clue why companies think this is a good idea.
s/Scheduled cash bonuses/Raises/ and I don't think you'd take the same critical tone.
I work for Google, and a significant chunk of my comp is in stock. I was awarded an additional $N of stock over four years this year, and I just considered it a raise of $N/4.
Yes, the point being that if you started to hate your job there's a good chance you'd stick around to the next vesting period. The same happens with an annual bonus, no one wants to leave before the bonus checks come out. The Valley likes stock, Wall Street likes bonuses (funny in a way).
Update: it also means you can stay at the job all year for the bonus/stock and then get laid off right before the end of the year. It's deplorable.
Maybe Wall Street is made up of "grunts" who understand the value of cash and properly discounts the promise of paper profits later!
That said, like earlier posters I can only budget around my base salary. I would of course prefer that "guaranteed" bonuses come in the form of base comp paid every check. If you want to incentivize me to create shareholder value and stick around; offer a generous ESPP.
Personally I wouldn't use an ESPP at all. You've already got your current job invested in the company, why would you want to put more eggs into that basket?
If you have the free cash to tie up in an ESPP, I generally think they are worth doing. They usually let you buy shares at a 15% or so discount of the lower of the price on the vesting date, or the price on the initial offer date. This is typically over either a 2-year or 6-month look-back period, although I've seen other time periods as well. Some programs even let you automate that automatic-sell rule.
So... if you're playing it conservatively, you can just sell the shares on the day that they are granted to you, thus realizing a guaranteed 15% increase on whatever percentage of your salary you can put in the program.
There is some risk that if the company goes bankrupt, you could lose the amount invested. But I'd guess that ESPP programs are pretty senior in the debt pool, and generally management doesn't want to piss off its employees any more then absolutely necessary during a bankruptcy proceeding.
Depends on the ESPP, no? The one ESPP I had was pretty nice: the shares were offered at a (double-digit, percentage wise) discount of the lowest share price at either the beginning or end of the purchase period. That effectively guaranteed a profit of at least the discount (more or less).
My vesting schedule is quarterly, at least for most of it. It wouldn't be a big deal to stick around an extra month or two to wait for that, if that was how I felt.
I'm more familiar with companies that have vesting schedules like: 10% per year for 3 years, then 70% in the final year. That's a great way to keep someone around for an extra couple years who doesn't want to be there.
I agree with you that your example is a lot more similar to an $n/4 raise. It's kind of like a "resolution" of your pay. Ideally you get paid every day for the work you did that day. $N/4 reduces the resolution to every quarter. My example above reduces the resolution to every 4 years. Each one increases the length of time you're going to keep someone working for you that otherwise wouldn't be.
As another reply mentioned, this can be a good thing. Keep around a talented person who you really need. My bet is that more often you're keeping around a talented person who isn't giving >100% (a passionate person will), and is probably poisonous to team morale too.
Having compensation be arbitrarily controlled by management makes it easy to tweak your numbers in a hurry. End of the quarter approaching and sales are still soft? Sorry "team member", no bonus this time. Just working on "proving yourself" and you'll be getting a bonus in no time!
Bonuses - the single incentive that turns colleague against colleague, after all, it is not enough to get a bonus, but if you can make out your colleague under delivered, maybe you can grab a share of their potential bonus pie slice too.
See this every day in a large Investment Bank. Bonus chasing bastards do not protect or grow the brand, they just ensure short term decisions remain the order of the day.
Any system that incentivizes having coworker under deliver is a bad idea. There is no reason bonuses have to fall in that category and in my personal experience they never have. Where I have worked bonuses we bases on a combination of personal performance, team performance and company performance so you got a bigger bonus if your coworkers did well.
Variable pay is also paid in bulk at the end of the year.
There are people I know who just struggle through to stick around till that pay day, particularly when the winter days are long and painful to get through at work.
That works for retention for a certain mind-set.
For someone like me, my last job triggered the right impulses.
By having quarterly review cycles - keeps you on your toes (with the extra management overhead of going through the reviews/budgets etc).
Someone around you was getting a raise every quarter - next time it could be you ... just buckle down for 3 months.
Plus they gave promotions in role 3 months before the raise.
It should be noted that this assumes that a basic level of income has been reached. While it's not usually a concern for the type of crowd that might frequent HN, it is a pretty big caveat.
It has always seemed to me that "I love that I get paid to do what I'm passionate about!" is in most (clearly not all) instances either a form of sweet lemon rationalization or else a kind of expression of stockholm syndrome.
That I am passionate about something does not imply I ought to be compensated less for it than I otherwise might be and, no, providing a space merely for me to do what I like is not "compensation." Employers love that there are so many people for whom "money is a poor motivator." It assists them in keeping the imbalance that exists stable (or growing).
Also, that paradox really only applies broadly to a very special kind of person, and generally only to people who are in professions for which a substantial minimum income is the general rule. I also suspect it's only true for a certain range (e.g. an additional 5-15% might not be of interest, but start talking about 20% or more of an increase and that gets to be another discussion altogether).
I love doing my job, and in a Star Trek-style socialist paradise I'd gladly do the same job even without differential compensation versus other options. That said, as a class-conscious worker in a capitalist system, I would never accept job satisfaction in lieu of fair pay.
I did take a pay cut for a while to work at a startup, but that was a choice I made based on the expectation that once the financial situation changed the founders would do right by me (and it did, and they did).
Somebody said to me in graduate school "You take the best offer you get, somebody else is determining your future."
She took the job she wanted. What's wrong with that? It's not all about the money.
There's a big difference between only taking the best offer (by which I assume you mean most lucrative) and only taking offers that are adequately compensated for the work performed. There's lots of employers that take advantage of their employees' desire to do good in the world in order to shortchange them.
"You take the best offer you get, somebody else is determining your future" generalizes: "You take any offer (of employment), somebody else is determining your future." Both are fairly vacuous tautologies.
Be as cynical as you like. But its still possible to keep looking until you find something that fits your priorities instead of signing up for the first big bank that makes a big offer.
I would say instead, if you take the best offer, somebody else is determining your past. That's because the salary you receive becomes your past when you use it to negotiate the next offer.
While this is true for many, not necessarily for all, and I'd definitely call bullshit if you try to generalize it. It boils down to personal goals.
Let's assume I want to build a real-world helicopter. I don't work in that industry, nevertheless, I earn something reasonable, and I am happy with it. Money may not be a prime motivator for my everyday job, but any 'above-the-minimum-happiness' money contributes to my long-term plan of building a real-world helicopter. And having such a long-term goal, in addition with the money that helps me to achieve that will increase my happiness way more than I've had been just with the job and less money.
Having more money without a goal is not a motivator. Getting more money to achieve an already established goal is.
There are two problems with setting goals for anything but menial tasks:
1) It's incredibly hard to set goals for complex projects without having unforeseen problems or side-effects (e.g. the product shipped on time, but it's buggy)
2) Experiments have consistently shown that creativity is negatively impacted by incentives (possibly due to stress causing narrowed focus)
In the market for prized tech talent in the SF Bay Area, a good environment, self direction, room to develop mastery, etc, are table stakes. So what's left? Cash, equity and benefits. And they definitely matter.
This is the only way we're going to encourage those on top to be super-productive and provide for the rest of us. Be happy for what you have or there will be no gruel for you anymore.
Since when were bonuses measures of merit or performance? It's more likely they're measures of company financial performance (in the case of the net pool), and the political whims of a manager (in the case of individual distributions).
I think a better plan for retention and performance would be ownership plans of some sort. Equity, options, stock purchasing plans, employee ownership plans, etc.
If we're talking realistically, there is no "new raise", and the majority of workers (especially hourly workers) don't get substantial bonuses whatsoever. There's yearly wages losing out to inflation and higher cost of living, and a stagnation in wage increases that has gone on for 30 years, on the broad view of things.
The article also mentions an "economic recovery" while failing to mention that labor engagement as a percentage of the population is at a 30 year low even when controlling for demographic factors. It's as though the author is living in a fantasy land where only positive information is taken into account when drafting an article.