Year-end bonuses awarded to U.S. employees fell by 21% last year from an average of $2,730 in December 2022 to $2,145 in December 2023, according to research from payroll software platform Gusto.
The drop is a 33% hit from the average in December 2021 which came in at $3,213 and a 41% drop from the $3,583 average in December 2019.
The research draws on data from over 300,000 Gusto clients. According to the report, a stabilizing labor market, a dramatic drop in expectations for employee growth across 2022 and 2023, and inflationary pressures are to blame for the hit to employee pay packets.
Whilst figures were down across all industries, there is variation from sector to sector. The technology sector is one industry with a notably small drop, with average bonuses falling by 3.8% from 2023 to 2022.
This consistency may be surprising given the number of lay-offs across the tech industry, but compensation packages at big-tech companies, unlike some other industries, have historically been heavily structured around bonuses. It could also be seen as an effort from HR - and compensation, benefits, and rewards teams - to retain their staff that remain.
U.S. employees in the transportation industry, however, are not so fortunate with their bonuses in 2023, experiencing a 36% since December 2022 after experiencing a negligible change from 2021.
Other industries where bonuses have been hit hard include food and beverage, dropping 26% from year-end 2022 to year-end 2023.
The report also finds that 16 of 22 industries saw a fall in the share of workers who received a year-end bonus from 2022 to 2023.
This report confirms findings from a Challenger, Gray, and Christmas, Inc. survey from December 2023. The survey found that 34% of employers did not plan to offer employees a year-end bonus in 2023. This was a 26% increase from 2022 and was the highest percentage since 2019 (36%).
There are signs that industries that significantly reduce the year-end bonuses offered to employees may experience widespread dissatisfaction and turnover.
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In the banking sector – perhaps the industry best known for eye-watering bonuses – meager bonuses have historically disgruntled employees.
In 2022, star performers at Goldman Sachs including traders and dealmakers were left frustrated as the investment banking firm’s budget for bonuses dropped by as much as 40% in 2022, higher than the average decline elsewhere on Wall Street (26%).
Since then, numerous employees including high-profile partners and executives left Goldman to join competitors such as Sixth Street and BDT & MSD Partners.
Insiders at Goldman told Reuters in November that they expected the investment banking firm to offer bigger year-end bonuses in 2023 to regain trust and support from frustrated members of the trading and investment banking division.
Other major employers have also shared plans to revamp bonus plans, including Walmart, which announced on Thursday that changes to the bonus structure for store managers could see them earn up to 200% of their base salary.
Many HR and rewards teams are now turning to alternatives to end-of-year bonuses, instead offering rewards such as personalized gifts, gift cards, parties, team-building activities, and extra time off. But whilst these are creative solutions and the U.S. labor market is easing for employers, as Gusto’s report says, millions of U.S. employees still expect a year-end bonus.
If they are frustrated with the pay packet they received in 2023, history shows they may turn to employers who are not making significant year-on-year cuts to bonuses.