Stop Thinking About That Year-End Bonus

October 8, 2008 by  
Filed under Budgeting, Spending

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 

This is my biggest beef with year-end bonuses.  When employees come to expect them, they end up spending the bonus before it is even received.  In fact, it got to the point at my former firm that some staff employees would implore management to distribute the bonus checks early, before the annual Christmas party.  Traditionally, one of the senior members of the firm would dress as Santa and work the room during the party, discreetly handing out Christmas cards with bonus checks inside.  I know it sounds corny, but it was fun and in keeping with a spirit of giving.  That all changed with these urgent requests.  It seems – as we were told – that many employees had already spent their bonus on Christmas gifts.  The credit card bills were rolling in and they needed the cash to send to Mr. Visa and Mrs. MasterCard.  Talk about sucking the holiday joy out of a bonus program.  Frankly, I lost all enthusiasm for the bonus program and proposed that in a measure of tough love, it simply be eliminated.  My proposal was a little harsh for my partners but we ended up changing the program to remove the holiday “gift” component entirely.   

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.


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Comments

5 Responses to “Stop Thinking About That Year-End Bonus”
  1. David says:

    Thanks for the Griswold reference, that made me laugh. So true though – dont even think of those bonuses, as you really cannot depend on them until they are in your bank account!

  2. David: Thanks for visiting. Clark Griswold is one of my favorite recurring comedy characters, but cousin Eddie is even better. I think Clark learned his lesson about bonuses.

  3. Zhu says:

    My job is not steady at all but I’m used to assume I will get less money than I expect. And bonus are certainly not in the picture… which is apparently good in a way 😉

    Generally speaking, I find North American tend to spend money they don’t have yet anyway 😆

  4. JEM says:

    Great advice. I work in sales and we get monthly a bonus based on sales. Sometimes we make way less than we think. Luckily I budget off my salary and take the bonus as extra…my co-worker doesn’t and has a heart attack every time we don’t make a good bonus for the month saying she is broke now. I hate to be mean but it is just poor planning.

  5. Evan says:

    As always you tell it like it is! I have been thinking about my year end bonus for the past couple of weeks and it is only October!

    At least I am not thinking of using it to buy my next plasma, but rather how great it would be to drop it off at citibank and pay down my debt! Not sure if this is better or worse?! Opinion?

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