LINCOLNSHIRE, Ill. – Holiday bonuses are continuing to decline in popularity as companies favor pay-for-performance plans to motivate and reward employees, according to Hewitt Associates (NYSE: HEW), a global human resources services company.  While 66 percent of companies will not award holiday bonuses this year, companies are relying more on variable pay plans (performance-based bonuses that must be re-earned annually) with 80 percent (1) of organizations currently offering a variable pay program.

"The majority of companies have realized that only through performance-based awards can an organization effectively motivate and reward employees for helping achieve their goals.  Variable pay plans, as opposed to holiday bonuses, clearly connect employees to company performance," said Ken Abosch, a consulting business leader for Hewitt Associates.

Hewitt's 2006 holiday study of more than 300 organizations reveals that more than half (52 percent) have never offered a holiday bonus, while 14 percent have discontinued their programs.  Of those that canceled their holiday bonus initiatives, 65 percent did so between 2000 and 2006.  Companies said they eliminated holiday bonuses primarily due to cost (61 percent), employees did not value it (35 percent), entitlement issues (33 percent) and the development of pay-for-performance programs (21 percent).

Of those companies that never offered a holiday bonus program, 45 percent said that all rewards are tied to performance, 36 percent said it was due to cost, and 30 percent never considered such a program.  Five percent of survey participants, down from 9 percent last year, said they will direct some or all of the money they would have spent on holiday bonuses to charitable organizations.

Conversely, of the 34 percent of companies that will offer a holiday bonus program in 2006, 39 percent will award cash, 37 percent will provide retailer gift certificates, and 27 percent will give employees a gift of food (e.g., turkey or ham).  These organizations continue to provide holiday bonuses as a way to say thank you/show appreciation (61 percent), maintain tradition (15 percent) and boost morale (15 percent).  More than half (58 percent) of companies surveyed said that all employee groups are eligible for holiday bonuses, while 20 percent said only full-time employees are eligible.

Variable Pay Plans Can Pay Off for Employees

Employees' take-home pay is continuing to get hit hard this year with increasing health care costs (2),  flat base pay increases (3) and rising energy costs.  For the majority of employees, variable pay can help make up where base salary increases and holiday bonuses fall short.  In 2006, actual company spending on variable pay as a percentage of payroll is 11.2 percent (4).   Spending on variable pay in 2007 is projected to remain strong at 11.0 percent.

"For those employees that meet or exceed their individual and company goals, the bonus payout could be much more than a traditional holiday bonus," said Abosch.

Holiday Parties Slightly Declining, but Remain Popular

Company celebrations continue to be popular during the holidays, with nearly two-thirds (65 percent) of organizations planning to host a party, down from 74 percent last year.  Of these, 23 percent will spend $5,000 or less on their parties, 27 percent will pay between $5,000 and $20,000, and 11 percent will spend between $20,000 and $30,000.

Of those that offer holiday parties, 7 percent indicated they will direct some or all of the money they would have spent on a holiday party to charity, the same as last year.  According to the survey, 57 percent of companies hold holiday parties after work hours, 63 percent hold them at offsite locations and 55 percent allow employees to bring significant others.  The average attendance for holiday parties is 64 percent.

About Hewitt Associates

With more than 60 years of experience, Hewitt Associates (NYSE: HEW) is the world's foremost provider of human resources outsourcing and consulting services.  The company consults with more than 2,400 organizations and administers human resources, health care, payroll and retirement programs on behalf of more than 350 companies to millions of employees and retirees worldwide.  Located in 35 countries, Hewitt employs approximately 22,000 associates.  For more information, please visit www.hewitt.com.

---------------------------------------------------------------------------------

1  According to Hewitt's "2006-2007 U.S. Salary Increase Survey" of more than 1,000 large organizations.

2  According to Hewitt's annual health care costs data, employees' total health care costs – including employee contributions and out-of-pocket costs – are projected to be $3,305 in 2007, up 7.8 percent from $3,065 in 2006.

3  According to Hewitt's "2006-2007 U.S. Salary Increase Survey" of more than 1,000 large organizations. Hewitt projects salaried exempt employees can expect a base salary increase of 3.7 percent in 2007.

4  According to Hewitt's "2006-2007 U.S. Salary Increase Survey" of more than 1,000 large organizations.