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The vanishing holiday bonus

Year-end cash seems to be going the way of the fruitcake, replaced by gift cards and performance-based awards.

By Marilyn GardnerStaff writer of The Christian Science Monitor / November 27, 2006

As Christmas approached two years ago, Valerie Bent was looking forward to the sizable semiannual bonus she and her colleagues always received at the investor relations firm where she was a vice president. Although their salaries ranked far below industry standards, the company paid out 90 percent of its profits to its staff as a bonus.

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But this time Ms. Bent and other employees received a shock: Despite the most profitable six-month period in the company's 30-year history, and contrary to everyone's expectations, managers reneged on the bonus.

"The company elected to take that money and open plush offices in West Los Angeles and New York," she says. "We were left with zero."

Although her experience may be unusual because it came without warning, it symbolizes the growing uncertainty in some quarters surrounding bonuses. In many companies, the year-end bonus is becoming a quaint memory of earlier times, when an extra envelope from payroll in December was an almost certain reward for everyone in a firm.

"We're seeing the holiday bonuses disappear," says Brian Drum, president of Drum Associates in New York. "Thirty-five years ago, when I first dealt with a lot of companies that used to pay the so-called Christmas bonus, it was a gift. Today, as companies are becoming larger and consolidated, they are giving because it's performance-related." Tying rewards to the performance of the company serves to motivate workers, employment specialists say.

Nowhere is that more evident than on Wall Street. Bonuses are reaching the stratosphere, rising an estimated 10 to 15 percent this year over 2005. Those rewards can average $1.7 million for managing directors of Wall Street banks. For top-tier bankers, they can swell to $20 million or more.

"The financial-services industry has the notoriety of paying the highest bonuses," Mr. Drum says. "They can be multiples of a person's salary. In the more industrial companies ... probably not a lot of bonuses are given out."

Many companies have also changed their fiscal year so it no longer coincides with the calendar year and the holiday season. Some end their year on Nov. 30. for others, it's March 31. "It kind of takes you away from paying a bonus," Drum says.

In a 2005 survey by Hewitt Associates, 59 percent of companies said they would not award holiday bonuses. But more than three-quarters of firms offer performance-based bonuses that must be reearned each year.

Among 1,500 small businesses, 39 percent plan to give employees holiday bonuses this year, according to Constant Contact, an e-mail marketing service for small businesses. That is up 2 percent from last year.

"For small businesses, cash flow and cash management are more difficult issues," says Gail Goodman, CEO of Constant Contact. "It is harder to see out to the future and understand where cash will be next quarter and next year. It takes more confidence for a small business to pay a bonus."

Whatever a company's size, employees are frustrated by a "lack of clarity about how one qualifies for that bonus," says Bill Kuntz, vice president of Princeton One, an outplacement firm. "They want to be treated fairly and have clear expectations."

For Bent, her canceled bonus proved to be fortuitous. "It was the best thing that ever happened to me," she says. Stunned by the company's action, she took the next week off and began setting up a business of her own, realizing a long-held dream. Then she quit her job, making it clear to her bosses that the failure to receive a bonus was the reason. "I decided to move on," she says. Today she is CEO of Big Feet Pajama Co. in Las Vegas.