A pay raise is by far the best benefit to the employee in the long run as it establishes a new base for any future pay raises, benefits, and bonuses. A bonus is the better option for the employer as it does not increase the pay base. The Japanese plan ryck cited is unlikely to be viable in this country as the 20% of pay that is withheld must be carried on the books as a liability offset to earnings and depresses the market value of the companies stock which benefits neither the employer or employee.
Give me the pay raise every time because the increase in pay goes on year after year while a bonus is a one time shot. In fact if for any reason there isn't a year end bonus it is like getting a pay cut. I have worked for companies where year end bonuses were the rule and invariably if for any reason there was no bonus it resulted in the loss of the most valuable employees — the ones who could easily get a higher paying job with the company's competitors taking not only their skill but also their knowledge with them.
