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Raise vs Bonus

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rated:
My company is switching over old employees to match salaries of new employees.  I have been given the option of a small raise and keeping the 50% of my total salary bonus earning potential or a $5K larger raise and dropping to a 20% of my total salary bonus earning potential.  The bonus earning potentially has only partially ever panned out and as the company grows I am assuming the bonus pool will continue to shrink, but this could still be a difference in 30K in a true bonus year.  Which option is the more financially intelligent over the next 2 years?

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rated:
I'll say it first... you'll need to provide more specifics about your situation if you want a good answer.
i.e.
What do you do?
What is required for the bonus?
What exact numbers are we talking about (not just percentages)?
What are your short and long term plans?

rated:
depends on what your salary is, where you are in your life, how long you plan on working there, how close to retirement you are.


When I was younger, I always took higher raises. Higher raise now means % raises in the future are larger, and % bonuses in the future will be based on a bigger number.
People at my company closer to retirement and closer to the top of the income range for their position take bonuses (their raise isn't going to be substantially more, they won't be impacted 10 years down the road by compounding increases, and just want a bonus now to spend on something).
People at my company that only plan to stay 1-2 more years prefer bonuses (it guarantees they get more money now vs salary increases which means they lose out on $$ if they quit before the next raise/bonus period).

rated:
So you are asking if you should trade $5k in salary for 30% of your salary in potential bonus? Only you know if the bonus is attainable, but not knowing your salary it is hard to have an opinion. Heck, even at a $30k salary you break even if you get that extra 30% every two years.

rated:
I'm too tired to calculate what you're trying to say, but remember a bonus is a one-time thing. Raises are part of your salary and get calculated into pensions and social security payment amounts.

rated:
How much do you make for your base salary?
How big have the bonuses been in all of the previous years?


I'm infering you make $100k and currently have the potential for up to 50% more in a bonus. (up to 50k bonus). And you're being offered a $5k pay raise if the bonus is cut to potential 20%. But you say the bonus "has only partially ever panned out" and you're assuming the as the "the bonus pool will continue to shrink"


If this is a bonus that virtually never pays out or has basically never paid out or paid very little, then I'd take the $5k cash.
But it really does depend on the nature of the bonus and how much and how often it pays.

And as imbatman points out it can also depend on if you're early or late in your career.

rated:
Well if I'm back-calculating everything, you have (approximately) the following options
  Option A Option B
Salary $103k $108k
Max Bonus (%) 50% 20%
Max Bonus ($) $51.5k $21.6k

Assuming that the plan pays out partial bonuses (i.e. if 50% of objectives are met, 50% of total bonus is paid), this seems like a fairly easy answer for me based on this boxplot of your salary range. Keep the 50%! 

(Assumptions were that you could be paid out partial and a 2.5% annual raise)

rated:
two years only? Take the raise.

rated:
take the raise ... this is an HR stunt.

Here's what will happen. Your manager will communicate your bonus in dollars anyway and you would only be considered relative to your peers. The dollar amount is discretionary and stack ranked.

Percentages only matter when bonuses aren't discretionary.

rated:
poohbeargirl said:   The bonus earning potentially has only partially ever panned out and as the company grows I am assuming the bonus pool will continue to shrink, but this could still be a difference in 30K in a true bonus year.  
  What have the actual bonuses been in recent years?  We need to compare actual to actual, not actual to potential, especially since you say the bonus has only partially ever panned out, and you assume it will shrink as the company grows.  That seems to be a logical conclusion, unless the company becomes more profitable.

rated:
imbatman said:   depends on what your salary is, where you are in your life, how long you plan on working there, how close to retirement you are.


When I was younger, I always took higher raises. Higher raise now means % raises in the future are larger, and % bonuses in the future will be based on a bigger number.
People at my company closer to retirement and closer to the top of the income range for their position take bonuses (their raise isn't going to be substantially more, they won't be impacted 10 years down the road by compounding increases, and just want a bonus now to spend on something).
People at my company that only plan to stay 1-2 more years prefer bonuses (it guarantees they get more money now vs salary increases which means they lose out on $$ if they quit before the next raise/bonus period).

  
To add, there are more things that are generally based on income, sometimes with a cap (some already included):
1. Future raises (compounding of raises)
2. Retirement matching contributions
3. Company provided life and accident insurance (typically a multiple of salary)
4. Bonuses (future bonuses)
5. Social security contributions
6. Short-term and long-term disability
7. Unemployment benefits
...

This often times seems like a shell game where your long-term is diminished either way, one way more than another.

rated:
Always take raises. Bonus is almost always a lie without a set formula. Total compensation comes out the same in most cases, guaranteed cash is the king!

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