A new wrinkle in the Freelance Economy

A few months back in this space I squibbed a series of blog entries on what I dubbed the "Freelance Economy." The term evolved as American employers continue to cut back on paid benefits that used to be considered de rigueur, such as vacation and health insurance premiums, and move closer to hourly wages.

Now there's one more indication we're shifting toward hourly wages or freelance employment and away from staff positions with full benefits. It arrived in the form of a report by consulting firm Hewitt Associates, and it shows employers are veering away from raises for workers and toward bonuses based on performance. This movement toward so-called variable pay (bonuses) doesn't commit companies to long-term wage hikes.

According to the Chicago Sun-Times, the study found "employers are continuing to rely on variable pay, or bonuses tied to performance, as a means of attracting, motivating, and retaining top talent. In 2006, company spending on variable pay as a percentage of payroll is 11.2 percent, more than three times the 2006 average base pay increase. ... Variable pay in 2007 is projected to be 11 percent."

The Wall Street Journal cites appliance maker Whirlpool as one example. The company overhauled "its pay-for-performance and review system this year," shifting away from routine salary hikes and toward performance-based bonuses.

Whirlpool is hardly alone. Hewitt Associates reports a steep rise in the percentage of companies that offer bonuses. It's now 80 percent, up from 78 percent last year and 67 percent in 1997. The Journal also quotes one manager as saying the corporate mentality is going "from entitlement to meritocracy." Nothing against meritocracies, but that's only one way to look at it. Another is, globalization is forcing American firms to compete with (some would say stoop to) developing nations' wage and benefit structures.