updated 12/19/2006 7:43:24 PM ET 2006-12-20T00:43:24

Along with Christmas music and sugar cookies, the holiday bonus is an end-of-year staple. And on Wall Street, bonuses are thriving like never before. This month Goldman Sachs announced net earnings of $9.4 billion, a 68 percent increase over last year's $5.6 billion profit. It was reportedly the most money ever earned by an investment bank, and enough money to make even a banker giddy. This year, traders and investment bankers at Goldman Sachs can expect bonuses in the tens of millions.

But you can expect zilch. According to a study by Hewitt Associates, only 34 percent of employers will offer holiday bonuses this year, down from 41 percent last year. Most of the Scrooges have never had a bonus program, but some have dropped their plans. According to Hewitt, two-thirds of the companies who have eliminated bonuses did so in the last five years. The quick and dirty infusion of holiday cash is "almost an extinct species," says Fred Crandall, a senior compensation consultant at Watson Wyatt.

Those who do offer bonuses don't always give cash. About 27 percent will give their workers food, since nothing says "I appreciate you" like a 12-pound ham. Another 37 percent will give gift certificates, and only 39 percent will actually distribute some dough. While the average cash bonus is worth $837, gift certificates are worth $37 on average and hunks of meat are only $24. Seems like someone told Santa that workers don't like money anymore.

Why? While workers may like receiving a little extra fat in their December paychecks, employers have increasingly found that bonuses don't accomplish much, especially when everybody gets the same thing. "You might think it would create some loyalty, but in fact it really didn't," says Jeffrey Bacher, a senior vice president with consulting firm Aon.

Not only that, but bonus plans can cause workplace disharmony if they aren't administered well. If they give everyone the same amount, they will anger the high performers. If they give some people more than others, they'll upset the low performers. Some dissatisfied employees will always complain about favoritism — and they may be right. "Whenever you give out bonuses you are going to tick certain people off," says David Hofrichter, a managing director at Buck Consultants.

Occasionally, that can have disastrous results. One of Hofrichter's clients, a midsized manufacturing firm, promised its workers would receive bonuses based on the firm's financial results as well as individual performance. The company did well, but at the end of the year executives realized the bonus pool hadn't swelled as much as they expected. If they gave out performance-based awards, some people would have gotten nothing or close to it.

So they decided to give everyone the same thing. But the product developers had worked long hours, and felt they contributed the most to the company's success. "They felt that their contributions were totally ignored," Hofrichter says. "That makes you susceptible to the recruiter's call." In fact, many of those product developers left the firm — which then sought Hofrichter's help.

As a result, most companies are switching to performance-based compensation plans with measurable goals. These bonuses aren't always tied to the calendar year — workers might receive them on their employment anniversaries, or whenever the company's fiscal year ends. When companies manage these programs well, they communicate their expectations throughout the year, so no one is surprised by the result. "People know what to expect," says Crandall. "You can pretty much figure it out on the back of an envelope, usually."

Alas, incentive payouts don't make sense for everyone. For salespeople and, well, investment bankers, it's easy to measure a worker's performance based on how much revenue he has generated. The more cash they bring in, the more they take home. That's why Goldman Sachs employees will be splitting $16.5 billion in pay this year, a 40 percent increase over 2005.

And for everyone else? Enjoy your $24 ham. If you get one, that is.

© 2012 Forbes.com


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