Bonuses Increasingly Make Up More of Pay Raises

Companies may be increasing their payrolls — but there's a catch.

Organizations are spending a record amount of their payroll on bonuses, according to a new survey by human resources services firm Aon Hewitt. Companies are devoting an average of 12.7 percent of their 2014 payrolls to variable pay, which includes either individual or company-wide performance-based bonuses — marking a shift away from longer-term salary increases.

The survey polled 1,064 companies in industries like energy, consumer products, banking and accounting.

The survey also showed that more than 90 percent of the companies included offer a variable-pay program, up from 79 percent of the companies polled in 2005, when 11.4 percent of payrolls went toward variable pay.

“Variable pay budgets and spending have nearly doubled in the last 20 years, subsequently emerging as the pay-for-performance vehicle of choice now and for the foreseeable future,” said Ken Abosch, compensation, strategy and market development leader at Aon Hewitt, in a press release. “In a more robust job market, competition for talent exists in every sector. As a result, we are seeing industries that have traditionally shied away from providing bonuses, such as agriculture, higher-education and the federal government, realizing they must establish variable pay programs to compete for and retain the best talent.”

Finally, the survey showed companies expect base salary increases to increase slightly to 3 percent next year.