US workers are getting smaller bonuses, a sign that belt-tightening employers aren’t as concerned about losing talent as in recent years.
The average cash bonus paid to employees last month was $2,145, down 21% from the previous year, according to payroll software company Gusto, which tracks payments made by more than 300,000 small businesses. Every industry posted a decline, ranging from 3.8% for technology firms to 36% for tourism and transportation companies. Not only were bonuses smaller, but fewer workers got them in most industries. Small businesses employ nearly half of all private-sector workers in the US, according to government data.
Not only were bonuses smaller, but fewer workers got them in most industries. Sixteen out of the 22 industries tracked by Gusto saw declines in the share of workers that received any sort of bonus, with the biggest drop coming at arts and entertainment firms. Compared with 2021, 6.9% fewer workers got a bonus in 2023.
“What surprised me was some of the industries where we’ve been talking about challenges finding talent, like food and beverage, health care and retail,” said Liz Wilke, principal economist at Gusto. “I didn’t expect to see the magnitude of the declines in those sectors specifically.”
Several factors drove the double-digit decline, Wilke said. Businesses are not hiring as aggressively as they were a year ago, according to data from the Federal Reserve Bank of St. Louis. Fueled by soaring inflation and workers quitting at a record clip, businesses doled out more generous compensation packages over the past two years, so there’s less money in those coffers now. The rate at which workers voluntarily quit ticked down in November to the lowest since September 2020. With workers less confident in their ability to find other jobs, employers are less inclined to be as generous come bonus time.
That stinginess was also reflected in a November survey of companies of all sizes by outplacement firm Challenger, Gray & Christmas, which found that 34% of companies didn’t award a bonus in 2023, up from 27% the previous year.
The biggest payouts went to finance workers, many at boutique investment firms, with an average bonus of $13,255, according to Gusto. Still, that’s down about 12% from the roughly $15,000 paid out in 2022 and 2021. The falloff mirrors what workers at Wall Street’s biggest banks will endure this year, as business has slowed and companies like Citigroup Inc. and others pare back expenses, according to projections from compensation consultant Johnson Associates. On Tuesday, Deutsche Bank AG’s Chief Financial Officer James von Moltke said a “difficult market” will be reflected in staffers’ bonuses.
Bonuses in the tech sector dropped, on average, $672 from 2021, when talent was much more scarce. Over the past two years, tech firms of all sizes have slashed more than 265,000 jobs in streamlining efforts, according to Challenger, Grey & Christmas. Cuts have continued in the new year, with Alphabet Inc.’s Google and Amazon.com Inc.’s Twitch unit trimming headcount.
Merit-based salary increases will also see slower growth this year at larger employers, although the raises remain above pre-pandemic levels, data from Aon Plc and Mercer has shown. Companies have greater flexibility to adjust bonuses to respond to changing economic circumstances than they do with salaries, according to Liz Supinski, director of research and insights at WorldatWork, a nonprofit that provides education for human-resources professionals.
To be sure, demand for workers is still strong, and unemployment remains low. But “turbulence lurks on the edges,” according to Nick Bunker, economic research director for North America at job site Indeed. “Job gains are clearly slower than this time last year.”