"It's Trump's Fault" - US Employers Cut Bonuses For First Time In 7 Years

As stagnant wages and rising tuition and medical costs squeeze middle class families, Bloomberg reports that US employers cut employee bonuses this year for the first time in seven years, further straining household budgets despite an ostensibly bright economic outlook. Bonuses slipped a tenth of a percentage point to 12.7% of total compensation this year, according to data from Aon Hewitt, which conducts an annual survey of more than 1,000 employers.

Aon said that while the move may not be dramatic, it"s confusing considering the relatively healthy state of the economy. What"s more worrying is that the cuts come as part of a broader retrenchment.

“It’s not a dramatic change, but it is counterintuitive,” said Ken Abosch, who heads compensation at Aon Hewitt.

“What’s even more surprising and alarming is that organizations are pulling back their projected spending in 2018,” he added. Companies expect to spend 12.5% of total compensation on bonuses next year, the survey found.

And in the spirit of “the buck stops here,” employers are blaming President Trump for the cuts, explaining that the uncertainty surrounding policies from tax reform to health care is making long-term planning difficult. Fears of an imminent recession have also inspired some employers to pare back compensation spending, risking losing their most valuable employees in the process.

“Despite the strength of the economy, a tight job market, and strong corporate performance, employers have resisted raising wages out of fear of increasing their fixed costs. Those surveyed said they had given out, on average, 2.9 percent raises this year and expect to give around the same next year. The specter of a recession, or even just a bad year, has kept salary increases at that level for the last five years. “There’s just not any appetite to budge on salary spending,” said Abosch. In that kind of climate, the bonus is a much more alluring way to reward workers: It’s not permanent, so companies can choose to hand out bonuses during boom times or withhold them when budgets tighten. Workers who rely on their regular earnings to pay the bills would be justifiably angered by wage cuts, but they may not expect to get a bonus every year.”

And bonuses will likely continue to shrink this year. Ironically, Bloomberg says employers are claiming that Hurricanes Harvey and Irma are forcing them to be more conservative by increasing the chances that inflation could pick up and erode profits. Even after several investment banks warned that the storms could lead to a slight pickup in GDP by increasing construction costs.  

“This year, however, companies are skittish on bonuses, too. Their budgets aren’t tight, but they fear an economic downturn is on the horizon—and specifically, those surveyed said, that greater government spending on defense, infrastructure, and hurricane relief could boost inflation and hurt corporate profits. “Organizations are expressing concerns about how all of that is going to get paid for,” said Abosch.”

Oh, and they’re blaming Congress, too.

“There’s something else giving employers pause on bonuses, too: “The accomplishments, or lack thereof, in terms of congressional results this year, and just some uncertainty about leadership in general out of Washington,” Abosch said. Congress has passed a $700 billion defense funding bill and a $15 billion in hurricane relief, but the passage of tax reform and health care legislation, two Republican priorities that would have a major impact on employers, is far from assured.”

US wages have been stagnant for years even as household wealth has ballooned to a record $96.2 trillion, according to the Fed’s latest flow of funds report."

Unfortunately, the benefits of this increase have largely accrued to the richest Americans, who own the majority of tradeable, and non-tradeable, assets in the US. According to the survey, virtually all of the rise in household net worth has only benefited a handful of the richest

Americans, with the top 10% of the wealth distribution holding 76% of all family wealth.

Because of this, the bonus cuts will almost certainly impact spending decisions made by middle class families, which could have economic ramifications for GDP, given the consumption-focused state of the US economy.

We wonder: With more cuts expected, whom will employers blame next to justify their “frugality”?

Our money’s on Putin.   
 

If You Like Your Stagnant Wages, You Can Keep Your Stagnant Wages

Ever since the great recession of 2008/2009, economists have grown increasingly perplexed by the lack of real wage growth in the U.S. economy despite improving unemployment trends.  Even with a 4.4% unemployment rate, real wage growth has been elusive and hovered between negative 1% and positive 1% for years now.

Of course, it all could have something to do with the ~95 million people who have given up looking for jobs and/or the massive transition to part-time laborers in the Obamacare era, but we"re just spitballing here.

Regardless of the reasons, according to a new survey from Aon Hewitt, the downward pressure on U.S. wage growth is unlikely to subside in 2018 with many employers saying their wage growth will be flat YoY.  Per the Wall Street Journal:

Businesses are planning to keep budgets for raises relatively flat in 2018, while continuing to devote more payroll dollars to performance-based pay, according to a survey of salary planning at 1,062 organizations conducted by consulting firm Aon Hewitt.

Despite low unemployment and increased competition for talent, companies are bearish on across-the-board pay raises, said Ken Abosch, an Aon Hewitt executive who works on the annual survey, now in its 41st year.

“Organizations are expressing reservations about the years coming and, for the first time since the recession, are signaling doubt or uncertainty about what they think their performance will look like in the coming year,” he said.

Moreover, in a move that will undoubtedly draw the ire of Bernie Sanders and his socialist followers, companies are increasingly saying that a higher percentage of their overall compensation will be dedicated to merit-based bonuses. 

Companies are paying to keep their highest performers happy and in place, with an average 12.5% of payroll going to incentive and bonus pay next year.

Overall, two-thirds of the organizations in the survey said they will use merit pay to show workers who’s doing a good job, and who could stand to improve. Of those companies, 40% said they would reduce or eliminate raises for low performers. And some high performers will have to work harder next year—15% of the companies changing merit pay say they will set more aggressive targets for bonuses and incentive pay.

Lindenwood University, a liberal-arts school near St. Louis, Mo., recently introduced a merit pay system for the school’s staff of 950. Previously, there was no formal structure for rewarding performance.

High performers get rewarded for their extra effort, said Dr. Deb Ayres, the university’s vice president of human resources. “They’re not getting the same small increases as everyone else. It’s very motivating for them.”

All of which is just a long way of confirming that "if you like your stagnant wages, you can keep your stagnant wages."