The holiday bonus for advisers at a number of banks has become a thing of the past, replaced with what some say are more effective ways of motivating workers.
“Cash bonuses have gone the way of the Christmas goose,” said Jeffrey Ellis, a senior vice president and program manager with the Popular Investments unit of Popular Inc.’s Banco Popular. “It hearkens back to the days of the gold watch, the 45-year employee, and the idea of the benevolent corporation.”
The majority of banks still offer some sort of bonus to employees, but fully one-third offer nothing at all, and for the 50% that do offer a bonus, an employee’s performance has little impact on its size, according to a recent compensation survey by America’s Community Bankers.
The majority of banks link the total amount of cash available for a bonus program to their financial performance in that year. The way the pool is divided up varies from bank to bank. Individual employees’ performance was cited as a factor by only 52% of respondents in the ACB survey.
Mr. Ellis said fewer banks are offering yearend bonuses because of the financial strain and the growing sense among employers that holiday bonuses do little to improve performance.
“I really think that compressed profit margins and higher expenses have squeezed most of us out of the business of cash bonuses,” he said.
To motivate performance, “there are only so many levers we can pull as program managers,” Mr. Ellis said. “There is the grid payout, the monthly draw, incentive trips, marketing support, software, licenses, advanced education. As we compete for financial consultants and sales associates, we have to devote our resources to the most important ones. There’s not a lot left over for Christmas bonuses.”
Even sales assistants, who may not be as easily motivated by marketing support and licensing, he said, are typically “more interested in an increase in salary than in variable compensation.”
Tom Mitchell, a regional vice president with Primevest, a third-party marketer based in St. Cloud, Minn., said that while some banks are giving a generous bonus at the year’s end — depending on how well the company does — “they’re making it an incentive pay reward, rather than a bonus.”
The trend away from holiday bonuses is not limited to banks. Studies by human resources consultants such as Hewitt Associates have shown that over the years, fewer employers include the holiday bonus as an element of compensation each year.
This fall, a survey by Money magazine and ICR, a market research firm, found that only 23% of U.S. workers expected to receive a holiday bonus in 2006. That dropped to 18% for salaried employees earning $75,000 or more.
Banishing the bonus might be good, according to former Secretary of Labor Robert Reich. In an American Prospect article several years ago, he noted that cost-cutting and profit pressures were forcing companies to slash holiday bonuses.
He argued that yearend bonuses do not work as incentives because employees have come to expect them, do not understand how they are calculated, and they fail to motivate employees throughout the year. “Better to give employees paychecks that reflect their ongoing value to the company,” he said. “Throw in a profit-sharing plan so employees have a real stake in the company’s performance every quarter.”
Many banks have adopted just such a system.
“We don’t do a straight end-of-year bonus,” said Ken Poirot, a sales manager and senior vice president with Frost Investment Services, a unit of Cullen/Frost Bankers Inc.’s Frost Bank in San Antonio. Most bonuses there are paid monthly or quarterly, he said. Advisers’ and sales assistants’ bonuses are based on their total production.
To the extent that there is a temptation for individual managers to play Santa and use discretionary funds, or even dig into their own pockets, some investment companies are sending an unambiguous message: Don’t do it.
Increased transparency requirements for financial services firms and regulatory attention to anything smacking of impropriety have encouraged companywide bans on all but the most nominal of gifts from a manager to employees.
“Our biggest concerns are the NASD rules and the IRS,” Mr. Poirot said. His company has essentially adopted the NASD’s stringent rules governing gifts from clients to brokers and applied them to gifts between staff. “We’re very black-and-white here,” he said. “We do everything we can to make sure we are well within the lines of what the NASD and IRS will allow. The downside could be so large that we want to be within any guidelines.”
At Frost, managers are encouraged to reward staff with gifts like cards, flowers, or dinners. But “even gift certificates are a no-no,” Mr. Poirot said. “We don’t want to have a taxable event.”
Many advisers struggle with how best to use compensation to motivate noncommissioned employees and determine that some sort of yearend payout is useful, said Bob Grieb, a managing director with the Bank Insurance and Securities Association.
“Sometimes the broker controls it and sometimes the institution controls it,” he said. In either case, the issue causes considerable yearend stress for managers.
Paul Werlin, the president of Human Capital Resources, a consulting firm in St. Petersburg, Fla., said he advises many firms on how to set up bonus systems that will suit their particular needs.
“Like any tool in the wrong hands, it can be used for good or evil,” he said. But in general, he end-of-year bonuses can be a useful means of creating motivated and loyal employees, he said.
Firms must decide whether to use an objective formula or subjective factors in assessing an employee’s performance. “Some employers opt for the completely formula-based approach, so employees know what they have to do to achieve a particular payout,” Mr. Werlin said. This avoids the perception of favoritism and provides a defense against potential litigation by employees.
On the other hand, “it’s nice for a manager to be able to reward based on intangibles,” Mr. Werlin said. “My recommendation is to tie a bonus directly to performance reviews, because there are objective and subjective components to them.”
