It seems that everyone is getting bonuses due to the new tax breaks. Walmart, Disney, Home Depot, and Best Buy are among the many giving out bonuses up to $1000 to employees. There’s nothing better than a nice lump sum of money.
Is there?
With a lump sum (albeit a good portion is taken out for taxes) you can pay down–or maybe even off–a loan, start an emergency fund (my personal recommendation if you don’t have one), buy something you’ve needed or wanted, or simply have some breathing room. It’s a fantastic thing, and everyone who got one should be thrilled.
But, they would have been better off, in the long run, with a $0.50 an hour raise, even though the bump in a weekly paycheck for a full-time employee would end up being less than $20. Multiply that out and you get approximately $1000 more per year, just like you did with the bonus.
But, the key is that you’ll also get that same $1000 next year, and the year after that, and when you get future bonuses and raises that are based on your current salary, those raises will be bigger.
Now, of course, with a lump sum of $1000 you can do all those things and an extra $20 a week gets frittered away. If you’re not paying attention and you don’t save it, it hardly makes a difference. But, if you are paying attention and save it, or use it to pay down debt, then you end up ahead.
Companies give out bonuses rather than raises precisely because it’s a one-shot deal. While it’s legal to lower a salary (with advanced notice, and in writing in some states), smart companies don’t want to do that. It’s demoralizing for employees to take a pay cut, even if it is simply bringing them back to the level they were at a year ago. A bonus, on the other hand, gets celebrated and if another one doesn’t happen, it’s not the end of the world.
Of course, if you make bonuses a regular occurrence (like many professional level jobs have), then employees come to expect it. But, they also expect variability in it. Which gives the company more wiggle room. A raise gives no wiggle room.
And while many companies no longer ask what your current salary is before offering you a new job, your decision to take a new job or not is based on your current salary. Unless you truly hate your current job, you are unlikely to leave for less. So, regardless of laws prohibiting inquiries into your salary history, your current salary will influence your future salaries forever.
If you got a bonus instead of a raise, use it wisely to make your life better in the long run. If you got a raise instead of a bonus, use it wisely to make your life better in the long run. Either way, you’re better off than you were before.