Here’s another sign the economy and labor market face a rockier road: year-end bonuses are shrinking.
Average holiday bonuses for small and midsize companies fell 9.7% to $526 last month from a year earlier, according to Gusto, a payroll processor that mostly serves small businesses.
“As economic uncertainty increases, companies are reducing bonuses,” says Gusto economist Luke Pardue. “This is the first place they look” to cut costs.
Most economists are forecasting a mild recession this year as the Federal Reserve’s aggressive interest rate hikes increasingly dampen consumer and business borrowing and spending. Some companies, in turn, are conserving cash for the tougher times ahead.
The trend also reflects a somewhat less intense competition for workers. As firms struggled to find employees during the pandemic, year-end bonuses grew 27% in 2020 and 9.6% in 2021, Gusto figures show. Companies use bonuses as a tool to retain workers who may be thinking of jumping ship.
While many companies are still struggling to find workers, labor shortages have eased somewhat. There were 10.5 million job openings in November, down from a record 11.9 million in March but still well above an average of 7 million or so in 2019, before the pandemic.
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And 4.2 million workers quit jobs in November, typically to take higher-paying positions, down from a peak of 4.5 million late last year but above the pre-COVID-19 level of 3.5 million.
“People aren’t moving around as much,” says Andy Challenger, senior vice president of Challenger, Gray and Christmas, an outplacement firm. “Companies and employees are both seeing things are starting to slow down.”
U.S. employers added a still healthy 223,000 jobs in December from an average of more than 400,000 earlier last year, according to the Labor Department. By mid-2023, economic research firms Barclays and Wells Fargo expect the economy to be shedding jobs. Tech companies such as Meta, Twitter, Amazon and Lyft announced a total of about 154,000 layoffs last year, according to layoffs.fyi.
Until last July, Austin, Texas-based ROI Swift, a digital marketing company, doled out quarterly bonuses, including at the end of the year, to help hold onto the company’s 13 workers.
“You felt like you had to do everything you could,” says company CEO Carolyn Lowe.
But, she says, ROI scrapped the perk last July.
“It’s gotten much easier” to hire, she says. “There’s a lot more people looking for work after the big layoffs.”
The company still wants to incentivize employees and attract job candidates but it has funneled its bonus dollars into wages, raising pay an average of 10% in 2022 from about 6% the previous year, Lowe says.
Job seekers “just see the salary number,” she says.
In December, the typical bonus declined 10.7% in professional services; 10% in restaurants, retail and other personal services; and 4.5% in health care, education, social services and nonprofits, Gusto figures show. Bonuses increased by 6.7% in manufacturing, construction, warehousing and transportation.
A separate Challenger survey of companies of all sizes, out late last month, also revealed a reduced emphasis on bonuses. Eighty-one percent of firms surveyed said they kept bonuses flat and just 4.3% increased them. In late 2021, 59% kept bonus values unchanged and 17.2% bumped them up.
“They’re not increasing bonuses into a slowing economy,” Challenger says.
Some companies continued to fatten holiday payouts.
Cumberland Creative, a Nashville, Tennessee-based video production and social media company, handed out holiday bonuses of $1,000 to $16,000 last month, up from $500 to $1,000 the previous year, says CEO Kyle Bush.
Annual revenue, he says, jumped to $2.3 million from $1.6 million the prior year, in part, because of the shift to all things digital.
“Everybody can get a piece of the pie,” Bush says. “We’re really focused on retaining employees.”
