Human Resources: Hewitt Survey Reveals Dwindling Popularity of the Annual Holiday Bonus

LINCOLNSHIRE, Ill. — Once a tradition of the holiday season, the annual holiday bonus continues to lose credibility as an effective way to reward employees. Indeed, according to a new survey from Hewitt Associates, a global human resources services company, 63 percent of companies will not award holiday bonuses this year. However, the news isn’t all bad. Ninety percent1 of companies are relying on variable pay plans (performance-based bonuses that must be re-earned annually) to show their appreciation to hard-working employees this year.

“Companies continue to realize the value of performance-based awards as a way to motivate and reward employees,” said Ken Abosch, North American compensation practice leader at Hewitt Associates. “Tying rewards to business performance keeps employees connected to the overall business strategy, and, in the end, is more meaningful than a ‘feel good’ holiday bonus.”

Hewitt’s 2007 holiday study of more than 350 organizations reveals that more than half (53 percent) have never offered a holiday bonus, while 10 percent have discontinued their programs. Of those that canceled their holiday bonus initiatives, 53 percent did so between 2000 and 2007. Companies said they eliminated holiday bonuses primarily due to cost (50 percent), development of pay-for-performance programs (37 percent), or difficulty in administering bonus programs (16 percent).

Of those companies that never offered a holiday bonus program, 54 percent said that all rewards are tied to performance, 34 percent said it was due to cost, and 29 percent never considered such a program.

Conversely, of the 35 percent of companies that will offer a holiday bonus program in 2007, 42 percent will provide gift cards, 41 percent will award cash, 25 percent will give employees a gift of food (e.g., turkey or ham), and 20 percent will give some type of catalog gift. For the few who receive gift cards, the amount will likely go up this year with companies giving an average of $52, up from $37 last year. The average cash gift given will be $842 compared to $837 last year.

Overall, organizations continue to provide holiday bonuses as a way to say thank you and/or show appreciation (69 percent), maintain tradition (11 percent) or boost morale (16 percent). More than two-thirds (70 percent) of companies surveyed who offer holiday bonuses said that all employee groups are eligible, while 17 percent said only full-time employees are eligible.

Bonuses by Industry

Hewitt’s study revealed that the prevalence of holiday bonus programs varies greatly across industries with the insurance industry leading the way (61 percent), followed by health care (50 percent), manufacturing (39 percent), retail (37 percent), financial services (16 percent) and the pharmaceutical industry (8 percent).

Employees Continue to See Boost from Variable Pay Plans

While U.S. workers can expect to see only modest base pay increases in 2008, they have the potential to earn more than three times as much through performance-related awards. In 2007, actual company spending on variable pay as a percentage of payroll is 11.8 percent2. Spending on variable pay in 2008 is projected to remain strong at 11.6 percent.

“Variable pay is one way that employees can make up for a lack of holiday bonuses,” said Abosch. “In fact, if company goals are met or exceeded, many employees can expect to earn far more than what they would receive in the form of a holiday bonus.”

More Companies Throw Holiday Parties this Year

Company celebrations continue to be popular during the holidays, with 70 percent of organizations planning to host a party, up from 65 percent last year. Of these, 24 percent will spend $5,000 or less on their parties, 12 percent will pay between $5,000 and $10,000, and 27 percent will spend between $10,000 and $25,000.

According to the survey, 56 percent of companies hold holiday parties after work hours, 65 percent hold them at off-site locations and 55 percent allow employees to bring significant others. The average attendance for holiday parties is 67 percent.

About Hewitt Associates With more than 65 years of experience, Hewitt Associates (NYSE: HEW) is the world’s foremost provider of human resources outsourcing and consulting services. The firm consults with more than 2,300 companies and administers human resources, health care, payroll, and retirement programs on behalf of more than 340 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 24,000 associates. For more information, please visit www.hewitt.com.

1 According to Hewitt’s “2007-2008 U.S. Salary Increase Survey” of more than 1,000 large organizations. Hewitt projects salaried exempt employees can expect a base salary increase of 3.8 percent in 2008.

2 According to Hewitt’s “2007-2008 U.S. Salary Increase Survey” of more than 1,000 large organizations.