What are year-end bonuses telling about US economy?

US workers are receiving smaller cash bonuses this year, indicating that employers are less concerned about losing talent than in recent years. The average cash bonus paid to employees last month was $2,145, down 21% from the previous year, according to payroll software company Gusto.

Every industry posted a decline, with small businesses employing nearly half of all private-sector workers in the US. Not only were bonuses smaller, but fewer workers received them in most industries. Sixteen out of the 22 industries tracked by Gusto saw declines in the share of workers that received any sort of bonus, with the biggest drop coming at arts and entertainment firms. Compared with 2021, 6.9% fewer workers got a bonus in 2023.

Surprisingly, shrinking bonuses exist also in industries where talk is nonstop about challenges finding talent, like food and beverage, health care, and retail. Businesses are not hiring as aggressively as they were a year ago, driven by inflation and record worker quitting. The rate at which workers voluntarily quit ticked down in November to the lowest since September 2020, making employers less inclined to be as generous come bonus time.

A November survey of companies of all sizes by outplacement firm Challenger, Gray & Christmas found that 34% of companies didn’t award a bonus in 2023, up from 27% the previous year. The biggest payouts went to finance workers, many at boutique investment firms, with an average bonus of $13,255, down about 12% from the roughly $15,000 paid out in 2022 and 2021.