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A Humbler Bonus

For too long, bonuses have been offered as extravagant entitlements, fattening not only bank accounts, but establishing and publicizing hierarchies of power and status.
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The bonus is being targeted as a villainous currency, a material expression of uncontainable executive greed. How can Wall Street keep dispensing such rewards at the same time it's begging our government for financial support? How could Citigroup pay out $4 billion in bonuses when it lost some $19 billion in 2008? And how can it be, as the New York Times reports, that Citigroup bankers are being so grumpy about their reduced bonuses? This year's bonus, according to one disappointed investment banking associate felt much like a "doorman's tip." Is it simply greed gone mad? Larry Meyers, who works for an Italian securities firm, offered a New York Times (January 30) reporter a different interpretation. "On Main Street, 'bonus' sounds like a gift," Meyers explained "But it's part of the compensation structure of Wall Street. Say I'm a banker and I created $30 million. I should get a part of that."

The bonus is indeed an odd form of payment, not quite a gift, but neither a wage or salary. Yet bonus recipients in all sorts of firms feel entitled to their bonuses. Bonuses, what's more, include different forms of payments with different histories, culture, and legal standing. Consider, for instance, variations among advance inducements to make some major commitments (e.g. enlistment in the army), after-the-fact lump-sum rewards (e.g. veteran's bonuses, retirement bonuses), discretionary rewards by employers (e.g. Christmas bonuses), payments tied to extraordinary individual achievements (e.g. overfulfilling sales quotas, landing a big account, inventions that become company property); payments tied to collective performance (e.g. shares of company profits, group productivity rewards), and more.

In most cases payers usually begin by retaining plenty of discretion, which allows them to define the bonus as gift, but recipients put on pressure towards routinizing bonuses as entitlements, or failing that, as regular compensation.

Consider the case of the Christmas bonus. At the turn of the 20th century, US employers began substituting the traditional 19th century Christmas offerings to employees -- turkeys, watches, candy, or gold coins -- with a cash bonus. As early as 1902, J. P. Morgan & Co. had apparently broken the record by giving each of their employees a full-year's salary as a Christmas present. Gifts of cash were increasingly standardized, calculated as a percentage of the wage. By 1911, 10 percent was considered "liberal." Some banks went as far as substituting the Christmas present for a first of the year merit increase in salary.

Most employers, however, continued to want to treat the bonus as a discretionary gift; after all, this custom of "remembering the workers" served them well to oversee and regulate workers' productivity as well as assuring their loyalty. Indeed, it is reported that Woolworth's first Christmas cash bonus to employees in 1899 ($5 for each year of service, with a limit of $25) was meant to match competitors' higher wages and avoid a salesgirls' strike. It was probably also a cheaper way to pay overtime. Around 1910, a 25-year-old saleswoman working in a New York department store told a National Consumers' League investigator that in the week before Christmas "she worked standing over fourteen hours every day... so painful to the feet becomes the act of standing for these long periods that some of the girls forgo eating at noon in order to give themselves ..a foot-bath." For this overtime the store gave her $20 "presented to her, not as payment, but as a Christmas gift."

Significantly, while some companies offered a bonus to every employee, others made the Christmas present contingent on length of service or a worker's efficiency record. Or on a worker's proper disposition of the bonus; in Christmas 1914, a large Minneapolis flour-milling company reportedly gave each of their employees a $25 check to be deposited at a savings bank, the gift-check being valueless otherwise.

But the similarity to other forms of compensation invited recipients to treat the bonus as an entitlement, pressing for a definition of the additional income as a right. The personalization of a business gift from employer to employee was hard to sustain when the bestowal was standardized and expected. By the 1950's, the Christmas bonus officially lost its status as a gift: when a firm announced a reduction in its annual Christmas bonus as a way to make up for the expense of introducing a costly new retirement plan, the union tried to negotiate the employees' holiday bonus. After the company refused any bargaining, the union appealed to the National Labor Relations Board. The Board ruled that the Christmas bonus could no longer be considered an employer's discretionary gift but an expected and negotiable component of a workers' wage. While a dissenting board member protested that a "genuine Christmas gift has no place at the bargaining table" (Niles-Bement-Pond Company and Amalgamated Local No. 405, International Union, United Automobile, Aircract & Agricultural Implement Workers of America, C.I.O., 1952), it was generally agreed that the bonus was no longer a present but a separate category of payment from the regular paycheck. The benefactor-beneficiary component of the employer-employee relationship, it follows, was vanishing.

The Christmas bonus illustrates the complexities of instituting discretionary payments. At issue was not only the amount and character of the payment but also the appropriate social relations between employer and employee. Not only bonuses, but also commissions, prizes, expense accounts, frequent flier miles, health benefits, even the key to executive washrooms and of course the newly infamous corporate jet, become contested but crucial, contingent, discretionary payments defining relations among people within contemporary firms. These payments announce, and to some extent determine, which pairs of workers are equal or unequal, close or distant, solidary or competitive.

The seemingly quaint 20th century Christmas bonus offers some insights into the current irrational pining by Wall Street bankers and others. For too long, bonuses have been offered as extravagant entitlements, fattening not only bank accounts, but establishing and publicizing hierarchies of power and status. As our national and global economic futures are being redesigned, such entitlements will quickly seem as quaint as the 19th century Christmas turkeys.