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Ian Brinkley
Economic Advisor
Ian Brinkley

A return of the bonus culture?

Authors: Ian Brinkley Ian Brinkley

13 June 2013

One statistic in the labour market figures released on Wednesday (11th June) caused much scratching of heads at The Work Foundation. In April bonus pay seemed to have jumped by a massive 46%in just one month, increasing by an eye-watering 64% in financial services. It is hard to recall any single month, even the good old days of bumper bonuses, which showed such a big rise.

Fortunately, my brighter and younger colleagues soon figured out what had happened from a reference in the accompanying ONS commentary and quick statistical analysis. The jump in April was partly because some large employers had delayed payments they would normally have made in March by one month.

The chart below, produced by my colleague Charles Levy, shows the monthly estimate of bonus payments in red, with a  huge spike in April 2013. The blue bars show bonus payments averaged over the main “bonus season” of December - April. The latter is a more accurate portrayal of the underlying trend – upwards but less dramatic than the monthly ONS figure suggests.


This is not the first time bonus payments have seriously distorted the pay statistics. The ONS made major improvements to the collection of pay data in the late 1990s, when it was realised that the bonus decisions of a few large employers were giving potentially misleading indications of the extent of wage inflation across the economy as a whole.  If a few delayed payments by some big firms to a selection of their employees had an equally powerful impact on an average pay statistic  (which represents 25 million employees) it would be worrying.  In April total pay was reported as rising by 3.3% on an annual basis, but regular pay – stripping out bonuses - went up by only 1.3 %.

Even so, bonuses are undoubtedly on the rise. The much more reliable three month average showed that bonus payments increased by 15 per cent over the three months to April 2013, compared with the same three months a year ago, and by 23 per cent in the financial and business services sector.  This is the strongest rise for some years. In contrast, regular pay on the same three month average basis  moved in the opposite direction. Regular pay went up by just 0.9% in the three months to April 2013 compared with the same period in the previous year, compared with 1.9% cent in the three months to April 2012, and 2%in the three months to April 2011.

The fact is  most people do not get bonuses. What happens to regular pay and the growth of consumption  are more important indicators  of living standards. Higher bonuses for some  - against a background of falling real wages for the many -  is not the basis  for  strong economic recovery.