Employers Favor Pay-for-Performance Over Holiday Bonuses

December 11, 2006 (PLANSPONSOR.com) - Sixty-six percent of companies will not offer holiday bonuses this year, giving way to a gradual trend toward performance-based compensation, a recent survey revealed.

According to a survey by Hewitt Associates of 300 organizations, a little more than half (52%) of the respondents never gave out holiday bonuses and 14% have discontinued the practice.

The most common reason for eliminating the bonuses was because they were too expensive (61%). Meanwhile 35% said they did so because employees did not value it, 33% cited entitlement issues and 21% said it was because they switched to pay-for-performance programs.

Of those companies that never offered a holiday bonus program, 45% said the reason was that all rewards are tied to performance, 36% said it was because the bonuses cost too much and 30% said they never considered such a program.

The most popular form of holiday bonus is cash (39%), closely followed by gift certificates (37%). Some 27% of employers will give employees a food gift, such as a turkey or ham. These organizations continue to provide holiday bonuses as a way to say thank you/show appreciation (61%), maintain tradition (15%) and boost morale (15%). More than half (58%) of companies surveyed said that all employee groups are eligible for holiday bonuses, while 20% said only full-time employees are eligible.

Even if performance pay is gaining steam, with 80% of employers now offering the incentive, Hewitt said in its survey that those rewards might take a hit this year in the face of competing costs such as health care, energy and base salary increases.

The actual company spending on variable pay as a percentage of payroll is 11.2% and is expected to remain relatively stagnant in 2007 at 11%.

Just as holiday bonuses are on the decline, so are the number of companies that say they will hold an office holiday party. Sixty-five percent oforganizations plan to host a party, down from 74% last year. Of those planning to throw a bash, 23% will spend $5,000 or less on their parties, 27% will pay between $5,000 and $20,000 and 11% will spend between $20,000 and $30,000.