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There are other drawbacks to variable pay. A fair number of performance-bonus plans are structured so that at least part of the money has to be paid out to employees as long as they meet their individual or departmental goals, regardless of how the company fares as a whole. You can bet shareholders will have some questions about those charges at the end of this year. Also, variable pay, by its very nature, puts a much higher premium on a company's ability to monitor and track the progress of its workers as well as communicate with them, which many organizations still don't do very well. "You can't pay for performance unless you can measure it," says Paul Dorf, managing director of Compensation Resources Inc., a consulting firm in Upper Saddle River, N.J.
While recognizing that variable pay helps keep the ranks from being further depleted, organized labor knows that it can be a double-edged sword. The decline in profit sharing was a key factor in the United Auto Workers' decision not to discuss additional wage or contract concessions after DaimlerChrysler's financial problems started last winter.
Most important, and perhaps ironic, a downturn in the bonus economy could cause a wider ripple effect than traditional layoffs. "The pain is now spread through more people in the company," notes Steven Gross, a compensation expert with the firm William M. Mercer consulting. "The drop in bonus pay will have an effect on consumer spending. And it could be dramatic." Just how dramatic? Thanks to cutbacks in variable pay, personal income in the first quarter of next year could drop as much as $30 billion, according to a study by economist John Youngdahl of Goldman Sachs.
Steve Feldman, a travel agent in Highland Park, Ill., certainly hopes that's not the case. His income, based primarily on commissions at the Far Horizons agency, is already down 25% this year. That's not enough, however, to make him trade his job for the security of one with a more dependable, flat salary. "Even though it's riskier," he says, "there's a greater possible reward." Like millions of other workers nowadays, Feldman, who specializes in organizing gambling junkets, might just have to wait a little longer to hit the jackpot.
--With reporting by Steve Barnes/Little Rock, Bernard Baumohl and Unmesh Kher/New York, Wendy Cole and Maggie Sieger/Chicago, Jeanne McDowell/Los Angeles and Joseph R. Szczesny/Detroit