Salary, bonus, wage rise question.

[Brian Lacey]

Imagine you work in a small office for a small company.
In the past you have been paid a basic salary and a yearly bonus (for work in the office, not sales related).
The company decide to do away with the bonus system and just pay a salary and yearly wage rise.
In the year that this change over takes place should .....

a) The new salary be based on just the old basic salary and a wage increase for this year ?

or

b) The new salary be based on the old salary PLUS the bonus paid last year and then the wage increase for this year ?

If a) then the new salary will work out less as the wage increase will be less than the usual yearly bonus. Recipient would be worse off.

Comments please.
I am retired and this does not relate to me or my family and it is not a scenario that I am familiar with.

Thanks Brian.

[sly fox]

Generally, bonuses are not guaranteed every year, and depending on the role or industry, could be very varied indeed. (5%, 10% or 50% etc)

Suspect most people would value a higher basic salary. Good for credit/mortgages etc, many lenders do not take bonuses into account unless it's part of the contract.

So in your scenarios, i suspect that a pay rise would be linked to the old base salary , not base salary + bonus.

[Panamax]

You need to read the employment contract.

It makes a BIG difference whether the bonuses were "contractual" or "ex gratia".

[Ethera]

Option A of course.

Bonuses are bonuses. You don't get them every year (although you should get them most of the time).

[Brian Lacey]

Gosh, thanks for the quick replies.
As I said it has nothing to do with me directly so I have no idea what someones' employment contract states.
I agree that a higher basic salary is much better than the bonus add-on, as it can be variable but option a) in its base form is quite cruel, especially in the current cost of living crisis.
Cheers
Brian.

[Kermit power]

If I were to find myself in that situation, I'd expect option C...

The new salary should be based on the old base salary plus the average of the previous five years' bonus payments.

[x5tuu]

Kermit power said:

If I were to find myself in that situation, I'd expect option C...

The new salary should be based on the old base salary plus the average of the previous five years' bonus payments.

In an ideal world I’d agree.

I worked in a company that did similar, our “Christmas bonus” was a full 100% every year from inception to a takeover and the new business then axed the bonus and based all salaries on historic and ignored the bonuses paid altogether.

Needless to say most staff left as everyone banked on that element as part of the package. Plus many had mortgages who’d accounted for it being present too as it was consistent.

[Mankers]

sly fox said:

Generally, bonuses are not guaranteed every year, and depending on the role or industry, could be very varied indeed. (5%, 10% or 50% etc)

Suspect most people would value a higher basic salary. Good for credit/mortgages etc, many lenders do not take bonuses into account unless it's part of the contract.

So in your scenarios, i suspect that a pay rise would be linked to the old base salary , not base salary + bonus.

On mortgages vs bonus. HSBC (for example) take the average of the past 3 years bonus and apply 50% of this average amount and add it to your basic.

[Glade]

If the company is getting rid of the bonus because they can't afford it, then where does the money come from to make that bonus into a permenant pay rise? The pay rise will be based on their wage, and the good times are gone. Bye bye bonus.

My company used to pay 15% every year. People got used to it. Now revenue is down, they've cut costs like crazy to maintain margin, but times are hard and people are in shock that the bonus is reduced. People booking holidays, expecting the bonus to arrive and pay the balance

[journeymanpro]

Glade said:

If the company is getting rid of the bonus because they can't afford it, then where does the money come from to make that bonus into a permenant pay rise? The pay rise will be based on their wage, and the good times are gone. Bye bye bonus.

My company used to pay 15% every year. People got used to it. Now revenue is down, they've cut costs like crazy to maintain margin, but times are hard and people are in shock that the bonus is reduced. People booking holidays, expecting the bonus to arrive and pay the balance

Indeed. I've rarely had a bonus but I've always treated the ones I have had as just that, certainly not to be relied on.

[RC1807]

Bonuses are very often discretionary, rather than contractual.

Personally I'd prefer a base salary increase as that's then guaranteed income.
Well, it's guaranteed so long as the company can still pay it to you ....


In my last role I was considered a "risk taker" (decision maker), so 60% of my bonus was locked up for 2 years in case of related regulatory or business failings. It was great to get your bonus letter, until you saw you'd only receive a portion in cash, the rest deferred for 2 years. Bummer.
First world problems.

[JmatthewB]

This is quite similar to my current situation.

In my current role I get monthly commission bonus for hitting sales targets. They offered me a different role which no longer has a sales commission element and I accepted as long as the salary took into account my commission bonus earnings. Last year I earned over £3k in commission bonus. The new contract came through yesterday and my salary has increased by only £2k. In other words I'm potentially over £1k worse off in the new role.