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Besides flexibility for the employer, there's one more reason why they prefer bonuses over salary raise: if you leave the company in the middle of the year, you

Besides flexibility for the employer, there's one more reason why they prefer bonuses over salary raise: if you leave the company in the middle of the year, you don't get half of the bonus, you get nothing. I understand employer's perspective here: they don't know how well the company will perform, you can't predict everything. So bonuses are a good way to say "if we achieve our goal, you will get part of it as a reward". However, very often recruiters include the bonus as part of annual salary when presenting the offer. This is unfair to the candidate - since bonus is not guaranteed, it shouldn't be included in the annual compensation, it should always remain separate with a clear information about conditions under which the bonus will or won't be granted.

cuchoi 8y ago
A optimal theoretical contract for an employer is: - If good outcome, pay a huge amount of money. - If bad outcome, pay 0 (or even negative, by getting money from the employee). This will incentivize workers for good outcomes. Of course this is unfeasible and difficult to measure, but bonuses make contracts closer to this theoretical contract.
- lallysingh 8y ago
  It also puts all the risk on the employees. They showed up, can they did their work. Whether that resulted in money made is a management issue.
fzeroracer 8y ago
During my prior job hunt I interviewed with a large financial company. I was upfront about my salary requirements and every step of the way they aggressively negotiated the final amount lower and lower until it was barely more than what I had earned at my prior job and mind you I was already being paid below market rate. Their direct reasoning for this was that the company offered strong end of year bonuses up to a ridiculous amount which in the fine print was dependent on a bunch of nebulous criteria. This was a company making money hand over fist. Needless to say I ended up not going along with that offer. As you've mentioned companies likely do this because not only can they fluff up an offer letter to look better, but because they have multiple avenues to deny you the bonus and save even more money rather than paying candidates a proper amount.
- esoterica 8y ago
  Bonus-centric compensation schemes are the norm in the financial industry. Discretionary income isn't a fake promise designed to trick employees, for many firms it represents the bulk of actual realized employee compensation. If you had an offer at a large company it should be pretty easy to dig around and figure out what the actual average bonus numbers are like.
- balladeer 8y ago
  In India this is exactly what happened with me. It was GS. Eventually I choose a startup (one of the large ones) as the GS team I was supposed to get into had a true legacy code and complete focus was maintaining the old, not at all brining in something new. They were offering me monthly salary which was a lot lower than what the startup offered (the one I eventually joined which was CTC = 95% fixed + 5% bonus). I tried to strike a balance with GS HRs but they were adamant and low monthly salary and an insane year end bonus. It was simple take it or leave it. I declined. I think it was a good call. That year that team got fried and bonus was low and there were firings too (knew some people in that team). From my experience I have noticed something that goes on in almost every company - your yearly bonus is dependent directly on your final rating and your final rating, love it or hate it, is almost entirely decided by the last few months and god help you if your manager changes towards the end.
jknz 8y ago
This may be a short-sighted policy for the employer. Once-in-a-year bonuses give very little incentive to produce efficient work day-to-day. Because bonuses are given far in the future, employees have little to no rapid feedback on their work; and being far in the future some employees simply forget about them (or believe they might change jobs before bonuses are given so why work hard anyway). Giving weekly or monthly bonus would give a rapid a powerful feedback to employees; and bonuses would be much connected to actual work than the corporate politics that happen just before the yearly bonus. Another thing that employers risk with this policy is employees leaving en-masse as soon as the bonus is given. Some consulting/audit companies give bonus after the summer, just before their busy season starts; and employers learn the hard way that giving the bonus as late as possible is not as smart as it first sounded.
- hackits 8y ago
  Very common for software developer working in Asian countries. As soon as the end of year bonus is given out they can walk into their office the next day and everyone has resigned and moved onto another company with all your IPO and business knowledge.
  - lallysingh 8y ago
    Or in finance
- JackFr 8y ago
  It's not short sighted. In finance it used to be the norm and is largely moving back that way. Using it as a lever for employee performance is a secondary effect (that can be done just as effectively with salary). Primarily it allows the firm to manage comp costs to be in line with the firm's performance. During a downturn it allows you to cut comp by like 25% without reducing headcount. The possibility of employees leaving en masse is certainly considered but it's not very common.
  - jknz 8y ago
    I should have added that it only applies to some companies. Finance is a special case because if a lot of traders leave at the same time, the ones who stay will have more capital to play with. Consulting/contracting/auditing firms are very different: they are committed to specific projects for specific clients and have already negotiated the fees. So it's real trouble if employees leave all at once--you cannot simply move their projects/clients to the employees who stay (because it creates even more overworked employees who will leave asap after the next bonus). Also these projects may be much shorter than a year, some audit works are done within one-two weeks. If the firm negotiated a 2 weeks project for $XX fees and the employees on that project manage to finish the project for far less resources, the firm knows that they made a huge profit on that project. The firm may give these employees an instant bonus so that the employees are incentivised to reiterate the performance for the next project.
maxxxxx 8y ago
"if we achieve our goal, you will get part of it as a reward". And next year the goal post gets raised. That's how it works at my company.
deleted 8y ago
[deleted]

cuchoi 8y ago

A optimal theoretical contract for an employer is: - If good outcome, pay a huge amount of money. - If bad outcome, pay 0 (or even negative, by getting money from the employee). This will incentivize workers for good outcomes. Of course this is unfeasible and difficult to measure, but bonuses make contracts closer to this theoretical contract.

lallysingh 8y ago
It also puts all the risk on the employees. They showed up, can they did their work. Whether that resulted in money made is a management issue.

fzeroracer 8y ago

During my prior job hunt I interviewed with a large financial company. I was upfront about my salary requirements and every step of the way they aggressively negotiated the final amount lower and lower until it was barely more than what I had earned at my prior job and mind you I was already being paid below market rate. Their direct reasoning for this was that the company offered strong end of year bonuses up to a ridiculous amount which in the fine print was dependent on a bunch of nebulous criteria. This was a company making money hand over fist. Needless to say I ended up not going along with that offer. As you've mentioned companies likely do this because not only can they fluff up an offer letter to look better, but because they have multiple avenues to deny you the bonus and save even more money rather than paying candidates a proper amount.

esoterica 8y ago
Bonus-centric compensation schemes are the norm in the financial industry. Discretionary income isn't a fake promise designed to trick employees, for many firms it represents the bulk of actual realized employee compensation. If you had an offer at a large company it should be pretty easy to dig around and figure out what the actual average bonus numbers are like.
balladeer 8y ago
In India this is exactly what happened with me. It was GS. Eventually I choose a startup (one of the large ones) as the GS team I was supposed to get into had a true legacy code and complete focus was maintaining the old, not at all brining in something new. They were offering me monthly salary which was a lot lower than what the startup offered (the one I eventually joined which was CTC = 95% fixed + 5% bonus). I tried to strike a balance with GS HRs but they were adamant and low monthly salary and an insane year end bonus. It was simple take it or leave it. I declined. I think it was a good call. That year that team got fried and bonus was low and there were firings too (knew some people in that team). From my experience I have noticed something that goes on in almost every company - your yearly bonus is dependent directly on your final rating and your final rating, love it or hate it, is almost entirely decided by the last few months and god help you if your manager changes towards the end.

jknz 8y ago

This may be a short-sighted policy for the employer. Once-in-a-year bonuses give very little incentive to produce efficient work day-to-day. Because bonuses are given far in the future, employees have little to no rapid feedback on their work; and being far in the future some employees simply forget about them (or believe they might change jobs before bonuses are given so why work hard anyway). Giving weekly or monthly bonus would give a rapid a powerful feedback to employees; and bonuses would be much connected to actual work than the corporate politics that happen just before the yearly bonus. Another thing that employers risk with this policy is employees leaving en-masse as soon as the bonus is given. Some consulting/audit companies give bonus after the summer, just before their busy season starts; and employers learn the hard way that giving the bonus as late as possible is not as smart as it first sounded.

hackits 8y ago
Very common for software developer working in Asian countries. As soon as the end of year bonus is given out they can walk into their office the next day and everyone has resigned and moved onto another company with all your IPO and business knowledge.
- lallysingh 8y ago
  Or in finance
JackFr 8y ago
It's not short sighted. In finance it used to be the norm and is largely moving back that way. Using it as a lever for employee performance is a secondary effect (that can be done just as effectively with salary). Primarily it allows the firm to manage comp costs to be in line with the firm's performance. During a downturn it allows you to cut comp by like 25% without reducing headcount. The possibility of employees leaving en masse is certainly considered but it's not very common.
- jknz 8y ago
  I should have added that it only applies to some companies. Finance is a special case because if a lot of traders leave at the same time, the ones who stay will have more capital to play with. Consulting/contracting/auditing firms are very different: they are committed to specific projects for specific clients and have already negotiated the fees. So it's real trouble if employees leave all at once--you cannot simply move their projects/clients to the employees who stay (because it creates even more overworked employees who will leave asap after the next bonus). Also these projects may be much shorter than a year, some audit works are done within one-two weeks. If the firm negotiated a 2 weeks project for $XX fees and the employees on that project manage to finish the project for far less resources, the firm knows that they made a huge profit on that project. The firm may give these employees an instant bonus so that the employees are incentivised to reiterate the performance for the next project.

maxxxxx 8y ago

"if we achieve our goal, you will get part of it as a reward". And next year the goal post gets raised. That's how it works at my company.

deleted 8y ago

[deleted]