Good Bonus Plan or Bad Bonus Plan? Would You Be Upset?

A friend of mine (who has been unemployed for over a year) was recently offered a job in her field with a good company. She didn’t take it. I was floored that someone who has been out of work for over a year would not snap up a job like this.

“I didn’t like the bonus plan,” she said.

“Excuse me?” was all I could manage.

“The benefits were all great. Good salary, heath insurance, dental, 401K, vacation, and sick leave, but the bonus plan was a loser,” she said.

“How so,” I asked.

“Well, instead of giving you cash at the end of the year if the firm meets its goals, they put the bonus into your 401K account.’

This didn’t seem horrible to me and I said so.

“Yeah, but if you don’t participate in the 401K, you don’t get the bonus.”

I was still trying to figure out the problem. “So? Participate. Are they making you put in the full fifteen percent or something to get the bonus?” That was the only way that I could see this being a problem and even then, that was stretching it.

“No, you can put in as little or as much as you want. You just have to be actively enrolled in it for the year that the bonuses are given out. ”

(I should note here that the company also offered a match on 401K contributions, in addition to the bonus. So you would get some free money every paycheck, plus a bigger lump sum amount at the end of the year. Their generosity in this economy blew me away.)

“And you didn’t take the job because of this?” I asked.

“Well, yeah. I mean when I get a bonus it’s for me. I want to spend it on something fun like travel or new clothes. Putting it in a 401K that I can’t touch until I retire is boring. They shouldn’t get to force me to do something with my money.”

At that point I had to walk away to keep from slapping this person. Who turns down an otherwise great job because of this? So I asked a few more people if this would bother them. To my shock, six out of eight people said that it would really bother them, although only one other said they wouldn’t take a job because of it. One person did say that they could kind of see my friend’s point. “It does stink to have the company dictating what you can do with your bonus money and, beyond that, essentially forcing you to participate in the 401K to get it. It’s like they’re holding all the cards.”

I really have to wonder about this. First of all, that this company offers a bonus plan at all makes it better than many. Bonus plans are hard to come by these days. That someone will just give you extra money in any form at the end of the year is beyond the norm. I can’t see turning down the chance to pad my accounts with free money, whether it’s in the form of a check or a 401K contribution, as making any kind of sense.

As for the idea that you can’t spend it until you’re old, or that the company is somehow holding your bonus money hostage, well, so what? It’s their company and their rules. Besides, too many people aren’t contributing nearly enough to their retirement as it is. I look at it a different way. I think this company is saying, “Hey. We won’t be providing you a pension when you’re older, so we want you to take responsibility for your old age now and we’re going to help you by encouraging you to save in the 401K, matching that every pay period, and then giving you extra money on top of it.” That kind of generosity and concern for employees is pretty scarce these days. I don’t think they’re doing it to be punitive, I think they’re doing it to be helpful

Finally, a bonus is just that. It’s not something you should count on or expect. Therefore, it should have no place in your regular spending plan. If you want to travel or buy gadgets or clothes, you need to include those in your budget and make sacrifices elsewhere or find another way to bring in regular income. Relying on the bonus to take care of your wants is a dangerous proposition. Besides, you’ll have wants when you’re older and won’t it be nice to have some extra money then?

I still can’t believe my friend turned down the job. Try as I might to see this bonus plan as the “loser” she claimed it to be, I just can’t. I can’t see that free money in any fashion is a bad thing. Might it be fun to blow a bonus on something frivolous? I guess so, but having never had a bonus plan I can’t say for sure. But it’s also great to have some help in setting aside money for your future needs. Personally, I’ll take the free money any day and any way a company wants to give it to me. That my friend turned down this job merely shows how out of whack her financial priorities are and explains why she so frequently has to borrow money.

So I’m putting it to my readers because I’m really curious about this. Would you have accepted this job, or is this bonus plan a deal killer for you?

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17 Responses to Good Bonus Plan or Bad Bonus Plan? Would You Be Upset?

  1. Spokane Al says:

    Your friend’s rationale is absolutely stunning and more than a bit offensive. She obviously has learned nothing from hanging around with you and/or following your blog. She is truly one of the clueless.

  2. Monkey Mama says:

    People never cease to amaze me.

    Of course I would not turn down the job! (Of course, I have never been offered a bonus plan – I couldn’t imagine being so choosy if I was offered one).

    My current employer did deposit 10% of my paycheck into my retirement plan, for about a decade. This was quite simply, awesome. The reason he does so is for the tax breaks, and the opportunity to far more heavily fund his own retirement. We get tax-free income. What is there not to like? I couldn’t imagine turning down the job because 10% of my income went to retirement (tax-free) instead of into my checking account.

    I had never thought much about it, but now that you mention it, I do see how the average person would be turned off by the *delayed gratification.*

  3. Jaime B says:

    At heart, I am a control freak when it comes to money. I would always prefer to be able to choose what to do with the money coming to me – even bonuses. Just because it’s not something you can count on, doesn’t mean you shouldn’t still be able to allocate it however you like. If you’re trying to get rid of a crushing amount of debt, you’d rather be able to throw a bonus at that pile wouldn’t you? If you don’t like the investment options in the company’s 401k or they’re particularly bad, you would rather be able to sock away that money in an investment or retirement vehicle of your choice wouldn’t you? If a family emergency coincided with the release of the bonus, wouldn’t you like to use this windfall to deal with it?

    Basically, there are lots of good reasons why you’d want to control ALL of the money coming your way.

    That said, I would have still taken that job – especially after a year of unemployment. If literally everything else was good, then this would be a minor issue for me.

    @ Monkey Mama – do you mean that he takes 10% off the top of your paycheck for a 401k contribution or does he make a contribution equal to 10% of your salary? The former would make me crazy (see above comments for why) but the latter would be fantastic!

  4. Petunia 100 says:

    Wow, I think your friend made a very foolish, short-sighted choice. I hope she is doing OK on unemployment.

  5. Monkey Mama says:

    @JaimeB – My employer makes a contribution equal to 10% of my salary. Of course, is like a bonus. No longer the case with this economy, but I enjoy the tax-free (tax-deferred) bonus when times are good.

    I admit I had no control over the amount was invested (the plan has since been closed and rolled into an IRA), but people stay so little at jobs these days, seems that is a moot point. Since you can withdraw or rollover these things when you change employment.

  6. Akikaze says:

    I’m pretty young, but I used to make $36 a year and that was a lot for just me, without any dependents. I used to get an occasional bonus from this company and it would surprise me every time. It was like money from heaven! I wasn’t expecting it and I never knew how much it was going to be. I just couldn’t believe that a company would willingly give me extra money just because they were doing well and wanted to share the wealth. Like you said, it’s a BONUS, and it’s not something they HAVE to do. So in any form that it comes, how can you not be grateful?

    Fast forward to 2008, right after my husband and got married and made a big move. He had been making as much as me and then we both ended up unemployed for the better part of a year. We had to put our pride in check and go back to retail jobs like Starbucks and Home Depot, making minimum wage just to try and keep a roof over our heads. How anybody could turn down a good job with great pay and benefits in this economy is completely beyond me and more than a little offensive. She needs to get her pride in check and face reality just like we did.

  7. Spokane Al says:

    Monkey Mama brings up a very good point in that with the bonus going into each employee’s 401(k), this helps ensure the company meets the Minimum Standard of Coverage Tests which, in turn, allows the more highly compensated employees to contribute more to their own 401(k)s. I suspect that this reasoning plays a big part in the company making the decision to offer the bonus via each employee’s 401(k).

  8. phr3dly says:

    I’m genuinely curious — are the stories you tell about “my friend” actually true?

    Whenever I read one of them, I can’t help but think they’re invented to make a point (valid though the point may be).

  9. Jennifer says:

    phr3dly — These stories are true. Sometimes I use the term “friend” for friends of friends, family members, coworkers, people from organizations that I belong to, or other people that I know or am connected to in some way.

    It’s just easier sometimes to say, “My friend” than it is to say, “The lady from my book club that I only see once a month but who constantly complains about her finances and her deadbeat ex-husband while we’re supposed to be talking about books.” (And yes, there is such a person.) So while “my friend” doesn’t always mean my BFF’s, these are real people that I know at least on some level and whose stories I’ve heard. I just keep my ears open and listen for money talk. There’s a lot to hear.

  10. Not taking it because they want cash to take a sweet vacation is one thing.

    Not taking it because in some industries (high tech, finance, etc) bonus programs make up a large part of your overall compensation – and you want the freedom to use that money in more ways besides retirement (maybe paying off your house or investing?) might be a reason I would turn down this job. Especially if comparable jobs in the same industry have a similar bonus plan without restrictions.

  11. Diane says:

    I think your ‘friend’ is crazy, but that’s just my opinion. Though I can see that it might be preferable to have a choice on how to spend your bonus money, it’s a JOB, with a BONUS! I’d take it in a heartbeat. You can always keep looking and maybe find a different job when the economy is better. In the meantime, you have a JOB with a BONUS! To me, that’s a no-brainer.

  12. Tim Cortez says:

    If I was looking for a job for over a year and an opportunity such as the one described presented itself, I would jump on it. I would never base a decision on how I would get my bonus per se. I mean if this person has five job opportunities knocking down their door and all are equal in all aspects except for how the bonus gets distributed then yea, I guess you can base a decision on that. In this economy who can really afford to nit pick a darn good job opportunity?

  13. Jteezie says:

    What company is this? I want my employer to put my full bonus into 401k but I’m limited to 50%.

    Does anybody know of other companies with this benefit?

  14. Tammy says:

    Are you kidding? What about all these elderly people who are living on a fixed income? When that bonus goes into your 401K, it raises the amount of money you will “earn” in retirement. Salary is usually much bigger than retirement, so the money shouldn’t really be needed now. Why would you turn down a chance to live more comfortable in your later years?

  15. Gail says:

    Your friend is pure nutz! I’ve never had a job that paid a bonus although once the nursing home where I worked gave us all $20 from donations from the residents families (big whoop). My son gets a bonus at his job $300, the last couple of years. Stuns me as he works at a grocery store and I was an RN that at times worked for corporate hospitals. You never know when you might get a bonus and to turn down a job because they want to pay it into a person’s 401K account is crazy, especailly since every other aspect of the job was good. I could see turning it down maybe if it was underpaid, bad benefits and this on top of it, but then after a years unemployment I would even take a job offering that.

  16. Meg says:

    I DEFINITELY do not think that this is a reason to turn down a job. However, I can see it as being a factor that you totally disregard when trying to choose between multiple jobs, instead of a fantastic thing. I currently have a contract for 10 months, and get benefits for 8 of them. The benefits include 3% match in my retirement plan, and I was told that sometimes they’ll give an extra percentage in bonus money. But the money from the employer is not vested at all until 2 years of employment, at which point it is vested at 50%, and then it doesn’t reach 100% until after 4 years. Even if my contract is renewed (has to do with funding availability from outside sources), I’m not sure I’ll hold my position that long. So the match money and any extra bonus money into my retirement account isn’t really something I consider myself as getting. But, as I said, I CAN’T see it as a reason to turn down a job, especially if one has been unemployed.

  17. Jijane says:

    You are all Sheepeople! Wow no way would I take a job like that. Let’s not forget if you are dead before you are 65 then the money means nothing! Ask George Harrison of the Beatles he died with a 100 mill in the bank at well before 65! Stop letting them dictate your lives for money you fools!!! That’s why your world sucks a little more every day!

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