Companies, for their part, say salary bumps are too permanent—too expensive. If times get tough, pay cuts hurt morale and productivity and risk attrition. “When you give a raise, it’s stuck in the pay system,” said Harvey. “It is something you’re guaranteeing; it’s becoming a fixed cost.”
In recent years, such companies as General Electric Co. have considered chucking the annual pay raise altogether for something “more flexible,” the company told Bloomberg last year. That flexibility often comes in the form of variable pay. Employers can opt for bonuses on a year-by-year basis, and if they have a bad year, they can just forgo it, rather than cut salaries or let workers go.
Companies say they’ve found that bonuses, since they come in one big sum, are better than annual incremental raises at motivating workers. They also help with recruiting and retention. “Where demand [for talent] is high but supply is low, the bonus is one more way to keep people that you want to keep,” said Dan Ryan, who runs a Nashville-based executive search firm.
If the tax law rewards any workers, Ryan predicts, it will be those so-called star performers—the same people companies are already plying with bigger raises and bonuses. Employers, he suspects, will use extra funds to attract them and keep them around and happy.
This article was provided by Bloomberg News.