That raise? It’s now a bonus.
The New York Times
A “little-noticed shift” in the way employers compensate workers helps explain “one of the economy’s most persistent puzzles,” said Patricia Cohen: “why a hot labor market has failed to ignite bigger increases in wages.” Over the past two decades, companies have developed a habit of handing out one-time bonuses in place of raises. In 1991, spending on temporary bonuses accounted for an average of 3.1 percent of total compensation budgets, while salary increases accounted for 5 percent. Last year, “one-time payments consumed 12.7 percent of those budgets; raises amounted to just 2.9 percent.” This shift began in the 1990s as a way for companies to respond to overseas competition; under pressure to keep costs down, companies used bonuses as a “release valve” to attract or keep talent when times were good. The recession accelerated the trend, with firms prizing the ability to “stay nimble” by keeping salary costs fixed. Rather than making new hires, companies contracted work; valued workers were offered bonuses instead of meaningful raises. The consequences of this shift “can be profound.” Raises “compound over time, offering greater financial security.” And the addition of bonuses has not been able to make up for stagnating wages: The inflation-adjusted median income of men was lower in 2016 than it was in 1973. Companies know as well as employees do: “If given a choice, most workers would take a raise.”