Although economic conditions are gradually improving, most companies are not in a festive mood just yet. This holiday season, businesses are expected to continue cutting back on bonuses, perks and office celebrations.

The economic downturn has taken its toll on many aspects of business, and perks such as bonuses and entertainment budgets have not been immune to sweeping cutbacks. Although conditions are slowly improving and some business sectors are beginning to stabilize, as with last year, workers are likely to see reduced bonuses, less gift giving and another season of canceled or scaled-back office parties.

According to a report from American Express OPEN Small Business Monitor last month, 69 percent of business owners do not believe the worst effects of the economic downturn are over yet and 57 percent claim these financial concerns have altered their holiday gift-giving plans.

The report also found that 42 percent of businesses are planning on giving out fewer or less expensive gifts to their employees and customers, 28 percent are relying on their own products or reward points to avoid spending cash on gifts and 23 percent have given up on customer gifts entirely.

Only one in 10 business owners plans on increasing gift-giving efforts this season, citing the downturn as an opportunity to win over more customers while most companies are scaling back.

“We’ve seen this trend towards making sacrifices across the board building with business owners since early fall of last year,” Alice Bredin, business adviser for AMEX OPEN, told Inc.com. “I think that’s the case for business owners who believe better times are around the corner as well as those [that do not].”

While holiday gifts can play an important role in boosting employee satisfaction and customer retention, the office party often serves as an indicator of the strength of a business’s success. Unfortunately, office parties are also facing cutbacks this year.

A recent survey by outplacement consultancy Challenger, Gray and Christmas (via American Management Association) found that only 62 percent of companies are planning holiday parties this year, down from 77 percent last year and 90 percent in 2007. Ten percent of companies that held parties last year are canceling them this year due to additional cost-cutting measures.

Among the companies that are hosting holiday parties this year: 64 percent are planning on spending the same amount on festivities as they did last year; 64 percent will only invite employees; 43 percent will throw the party during or at the end of a workday to save costs; and, interestingly, 57 percent will serve alcohol, up from 48 percent the previous year.

“Companies are postponing major investments, hiring initiatives and many other expenses, including holiday parties,” John Challenger, CEO of Challenger, Gray and Christmas, said. “For companies that have recently announced layoffs or other significant cost-cutting measures, such as wage freezes, it would be difficult to justify, let alone get in the mood for, a holiday party.”

Although fewer companies are hosting holiday parties, more firms are using a portion of the money saved to donate to charities or community service works.

“At employers large and small, the holiday party has disappeared or become a shadow of its former self. In its place, bosses are planning help-the-hungry or cheer-the-children campaigns,” the Washington Post reports.

The employee bonus system is also expected to suffer from the economic downturn, though not as badly as last year. According to a separate survey from Challenger, Gray and Christmas released on the company’s @Work blog this month, 64 percent of employers are planning to distribute bonuses this year, up from 54 percent in 2008. However, 16 percent of those not awarding bonuses this year said they had given bonuses the previous year.

Twelve percent of companies stated their bonuses would be the same amount as last year, 8 percent said they would increase the size of their bonuses and 4 percent claimed they would reduce them.

“While most [firms] can probably justify postponing bonuses another year, there are growing concerns that job market improvements in 2010 could bring an exodus of workers. Companies are also sending a message that we appreciate that this has been a tough year for everyone, and that the workers’ part in ensuring continued survival is recognized,” Challenger said in a commentary on the report. “In some respects, it truly is the thought that counts.”

Earlier: Economy’s Latest Victim: The Holiday Office Party

Resources

Small Business Holiday Gift Budgets Hold Steady, But Fewer Plan Bonuses and Raises…
American Express OPEN Small Business Monitor, Nov. 9, 2009

Business Owners Cut Back on Gifts, Bonuses This Holiday Season
by Lauren Folino
Inc.com, Nov. 26, 2009

Holiday Parties, Version 2009
by Shari Lifland
American Management Association, Nov. 9, 2009

A Different Sort of Holiday Cheer
by Vickie Elmer
The Washington Post, Nov. 22, 2009

John Challenger on Holiday Bonuses 2009
@Work (Challenger, Gray and Christmas), Dec. 10, 2009