An Employeer’s New Bonus Scheme
post # 334 — March 20, 2007 — a Careers post
Here’s another reader question, from “D”:
For the last nine years I have worked for a sales and marketing firm. Almost every year I have received â€œIncentivesâ€ and â€œBonusesâ€ (of varying amounts) for the work I do. The â€œBonusâ€ is from a pool of funds paid to my company by my client. The â€œIncentiveâ€ is paid directly from my employer.
This year the company is taking a 12% â€œadministration feeâ€ (pre-tax) from the bonus and incentive monies. Iâ€™ve been in this business for over 20 years and have never heard of such a thing, let alone experience it first hand.
The oddity of thisâ€”to my thinkingâ€”is that someone who receives a $1,000 bonus pays $120 for the cost of being paid. Someone who receives $3,000 pays $360 and so on up the scale. Another way to look at it: My client paid the company almost $1,000,000 in bonus. My company is taking almost $120,000 in â€œfeesâ€ from its employees (and the employees are paying the tax as well).
So, my questions are (a) Have you ever heard of such a thing in any business? And (b) Isn’t it odd that the employee would pay a federal and state income tax on what the company is taking out as an administration fee? (In other words, we are paying the companyâ€™s income tax before them; at least, thatâ€™s the way it seems to me.)
D, I never expect to be surprised at the complex payment schemes that firms devise, and Iâ€™m rarely shocked that firms would put in place self-serving systems that adversely affect their employees (or independent subcontractors, in other instances.) If itâ€™s the deal they offered at the beginning, and employees voluntarily accepted that deal when they came in, then so be it.
However, itâ€™s the overnight change in the mutual understanding that would trouble me if I worked where you work. As you point out, a 12% administration fee burden on employees is a sizable sum, and if it were to be â€œimposedâ€ without explanation and consultation, Iâ€™d expect a revolt. (Unless itâ€™s the same in every competitive firm.)
Iâ€™m enough of a capitalist to say employers are allowed to structure their pay offer any way they want to. But Iâ€™m also enough of an idealist that I, personally, wouldnâ€™t continue to work at a place where the mutual trust was broken in this way.
What think the rest of you?
Louise Berto said:
Without knowing the specific industry practices of the writer, this smells really fishy to me (and that’s an insult to fish). I don’t know what the compensation split is for D, the writer, but if, like many sales people, the his/her compensation is a mix of base, bonus and incentive, with the bulk of it in bonus and incentive, then their firm has cut their compensation by 12%. Do they have a signed employment agreement? If so, a unilateral cut like this is probably illegal, as well as unethical, and could merit a challenge to the labor board. As a long time executive recruiter, I have heard of hundreds of bonus incentive plans, and I’ve never heard of a 12% admin fee.
posted on March 20, 2007