Stop Thinking About That Year-End Bonus
Are you making plans for your year-end bonus? Please don’t.
Christmas decorations and holiday sales promotions are already appearing in malls and stores. For many employees, awareness of the approaching holiday season and calendar year-end triggers an anticipation of receiving a bonus. Many employers have traditionally handed out bonuses at year end, either as a celebration of the holiday or as a merit bonus for year long performance.
Mr. ToughMoneyLove has lots of experience with year end bonuses, both as a recipient in my younger days and more recently as an employer distributing them. My message today is to encourage all of you who have reason to expect a bonus to stop thinking about it.
Most Bonuses are Spent Before They are Received
Don’t Be a Clark Griswold
Similarly, merit bonuses paid to sales and professional employees are also spent in anticipation of receiving them. Remember poor Clark Griswold of National Lampoon’s Christmas Vacation fame? Expecting a year end performance bonus based on Christmas past, Clark put $7,500 down on a new family swimming pool. Clark didn’t actually have the $7,500 in the bank but decided to cut the check and play the float. When a “jelly of the month” certificate showed up instead of a cash bonus, cousin Eddie had to take matters into his own hands.
Sadly, there are lots of Clark Griswolds out there. By the time the employee bonus actually arrives (if it does at all), it’s a huge anti-climax because the employee has allocated it to prior expenditures. In our firm, we often debated the size of merit bonuses by focusing more on what someone would expect to receive rather than on what he or she deserved. Again, that came about because we knew that significant employee expense outlays had already occurred based on a bonus expectation.
This Year-End Calls for Extreme Bonus Restraint
Let’s be realistic and face the hard truth. The end of 2008 and continuing into 2009 is going to be a time of layoffs, with many economists expecting unemployment to rise to 8%. (If you heard Paul Bernanke speak this week, you have to expect this.) This is what the U.S. Bureau of Labor Statistics recently reported:
The unemployment rate (6.1 percent) was unchanged in September, following a 0.4-percentage point rise in August. The number of unemployed persons was little changed at 9.5 million. Over the past 12 months, the number of unemployed persons has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points.
If the predicted unemployment increase to 8% comes to pass, an additional 3-4 million jobs will be lost in the next twelve months. This means that for some, this next year-end bonus may also be their severance pay. For those who remain employed, many employers will be taking a fiscally conservative approach and cutting back or eliminating bonus programs. Every employee must prepare for these recessionary effects.
Look at this way. If you mentally treat your “bonus” in name as a “bonus” in function (as it was intended), it will represent found money that can be used for the financial protection of you and your family if and when needed. If you end up not needing it as the economy recovers, pay off debt with it or save it. Heck, you might eventually be able to take a vacation with it. (Maybe to Wally World?) On the other hand, if you spend it in anticipation of receiving it, you could end up with a disappointing outcome in more ways than one.