If you are receiving the annual bonus or 13th cheque payout in December, you should understand the nature of the bonus in your organisation before spending it.
In the corporate environment the term ‘bonus’ has been distorted with the use of sign on bonus, guaranteed bonus, performance bonus, sales bonus and bonus plans to achieve different organisational objectives. These objectives include attracting talent, curbing employment costs and rewarding performance. A 13th cheque that is a guaranteed component in your total cost package is actually deferred compensation paid as a lumpsum. You expect the payout as part of your total cost package unlike the traditional bonus. It is not free cash for incurring festive debt.
In the SMME environment, many business owners will pay a discretionary bonus to their staff without establishing a business case for it. The discretionary bonus can create discord among employees that perceive it to be inequitable or influenced by office politics.
A common sore point in practice for the performance and discretionary bonus is that employees automatically feel entitled to it irrespective of underlying circumstances or criteria. If you are planning to fund your next holiday or appliance purchase on being entitled to a bonus, it is a shock when it does not materialise.
From a tax position, the annual bonus falls into the remuneration net and is subject to taxation at your marginal tax rate without any relief.
Bonuses are going to be around for a long time as they are useful rewards in the employment relationship. In 1990 the Wall Street Investment banking firm Drexel Burnham Lambert gave staff over $195 million in bonuses before the firm filed for bankruptcy. A spokesman for the company said “If we didn’t have bonuses, we wouldn’t have had anybody working for us.”
(Star Workplace, November 2006)