Without deeper consideration, traditional holiday bonuses can exacerbate pay inequity, a new study showed.

Compliance software company Trusaic issued a report in December highlighting the ways employers can perpetuate systemic oppression through end-of-year bonuses.

The problem with traditional holiday bonuses

Many employers issue bonuses that are a percentage of a worker's salary, instead of a static dollar amount. "Bonuses, when calculated this way, will necessarily perpetuate pay disparity, if pay disparity already exists within the base salary compensation," Trusaic's report said. "A lower salary in turn generates a lower bonus percentage calculation."

On top of this, the report added, holiday bonus percentages tend to be higher depending on an employee's rank in their organization. This can compound preexisting systemic oppression. "A lack of opportunity and promotion fairness can prevent an individual or class of workers from ascending to higher levels within an organization, where they would automatically qualify for a higher bonus range," the report continued. "Organizations cannot have pay equity if they don't have promotion and opportunity equity."

It all comes back to salary history

Long before potential promotions or lack thereof decide the fate of someone's compensation, talent must meet the hurdle of negotiating pay as a new hire. This is where salary histories — and, in some cases, their bans — come into play.

"If an organization asks for prior history from a class of workers who historically have received lower pay, they then bring that individual into the organization at a lower salary, which then translates into a lower bonus," the report underscored. For BIPOC (particularly Black people and Indigenous people) as well as gender minorities and people with disabilities are at risk of lower overall compensation from day one as they hammer out job details with recruiters.

"This is why so many jurisdictions are passing salary history bans and/or requiring organizations to publish salary ranges," the report noted. As it stands in early January 2022, 21 states have outlawed pay history questions. California's ban prohibits private and public employers from seeking a candidate's pay history. The same goes for Illinois, New York and Virginia. In Delaware, Maryland and Washington, D.C., employers can ask a candidate those questions only after extending them a job offer.

"Asking for pay history or limiting salary based on a person's historical salary perpetuates pay inequity throughout a person's career," the report continued.

You don't have give up holiday bonuses, though

Simply put, Trusaic recommends that employers do a comprehensive pay equity audit.

"You can't manage what you don't measure. Calculating bonuses in a vacuum is easy enough; however, calculating a bonus that does not aggravate pay disparities requires a rigorous analysis." One tool to make it easier: Trusaic said that equity monitoring software can keep track of pay disparities and ensures that they don't worsen over time.