With fewer year-end bonuses, will turnover rise?

Canadian 'employees, despite facing financial pressures themselves, may be willing to 'take less elsewhere' if they feel undervalued or overlooked'

With fewer year-end bonuses, will turnover rise?

Providing year-end bonuses can definitely help in retaining workers, but two in five professionals in Canada who usually receive an end-of-year bonus will not get one, according to a survey.

According to business leaders, the leading reasons for not being able to give bonuses are:

  • Layoffs and workforce reductions (35%)
  • Reduced profit margins (31%)
  • Economic uncertainty and inflation (20%)
  • Change in compensation strategies (14%)

“This year’s bonus outlook reflects the economic pressures that many businesses are facing,” says Martin Fox, managing director at Robert Walters Canada.

Turnover concerns

Many managers (26%) are “concerned” that the withholding of new year bonuses will result in a spike in staff turnover in Q1, according to the Robert Walters report based on two surveys: one on covering 500 professionals across the months of June and July 2024, and another covering over 3,000 professionals (employers and white-collar professionals) from November 2024 to January 2025.

And 59% believe that a lack of bonuses will drastically lower morale in the workplace.

And it seems they are right to be worried: 63% of professionals would “take steps to leave” this year if they aren’t given their anticipated pay rise, bonus or promotion, according to the report.

However, 27% also say that they would be willing to “move for the same amount of money,” with almost half (47%) stating they would “take less” so long as their new organization gave them more purpose, recognition in their hard work, or flexibility.

Handling disconnect around rewards

"We’re seeing a rare, yet concerning, situation brewing where employees, despite facing financial pressures themselves, may be willing to ‘take less elsewhere’ if they feel undervalued or overlooked during their next pay review,” says Fox.

“This is an unprecedented moment where the emotional and psychological aspects of work – recognition, purpose and flexibility – are outweighing pure financial compensation. Employers need to recognize that withholding bonuses or promotions could lead to an erosion of trust and commitment, which, in turn, could fuel a wave of resignations.”

So, how should the disconnect be handled? For employers, clear communication is key, he says.

“Misaligned expectations between professionals and their organizations can lead to disengagement and retention issues, especially at a time when attracting and keeping top talent is already a significant challenge. Companies that cannot offer financial incentives should consider alternative ways to recognize and reward their staff to maintain morale and loyalty.”

Over 7 in 10 (71%) employees say they will “seriously contemplate” leaving their current job if they miss out on a year-end bonus this January, according to a previous report.

What is the best way to retain employees?

According to O.C. Tanner, some of the root causes of employee turnover are poor management, lack of job advancement, and a deteriorating work-life balance.

Conversely, the factors that influence employees to stay include feelings of belonging, greater connection, and autonomy. These traits can help build a positive workforce culture and reduce turnover, according to the employee recognition-focused company.

“More than pay and benefits, employee retention strategies should include modern leadership, development opportunities, mental health support, and giving employees a say on how and where they work,” they say. “Even physical factors, like the work environment and technologies a company chooses can affect whether employees will want to stay long term.”

O.C. Tanner also shares the following strategies for improving company culture and reducing turnover:

  1. Help employees meet their survive and thrive needs.
  2. Show practical empathy.
  3. Help all of your employees feel seen.
  4. Create an environment that’s flexible, but fair.
  5. Promote skill building and development.
  6. Support employees through job changes and transitions.
  7. Leverage your employee recognition program.

“For businesses, offering financial rewards may not always be feasible, but creating a culture of transparency, purpose, and flexibility has never been more critical to retaining top talent,” says Fox.

Hiring activity across Canada is poised to remain strong in early 2025, according to a previous report from Robert Half.