4 ms·

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

by djur 12y ago

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.

encoderer 12y ago
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?
- djur 12y ago
  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.
  - encoderer 12y ago
    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.
henrikschroder 12y ago
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.
owenmarshall 12y ago
>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!
- djur 12y ago
  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.

by djur 12y ago

encoderer 12y ago

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?

djur 12y ago
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.
- encoderer 12y ago
  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.

henrikschroder 12y ago

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.

owenmarshall 12y ago

>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!

djur 12y ago
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.