Profits at the retail partnership, which also owns Waitrose supermarkets, were held back by greater investment and by matching prices of competitors.
Profit before tax and bonuses was Â£353.8m for the year to 28 January, down 3.8% from the previous year.
The bonus pool for the firm's workers was Â£165.2m or 14% of salary, down from 18% last year.
The partnership is owned by its 77,217 staff, who receive a share of any profits at the end of the company's financial year.
Despite what the firm called "difficult economic conditions", total sales at its John Lewis department stores grew 3% while those at its Waitrose supermarkets rose 8.6%.
Like-for-like sales, excluding VAT and the effect of new store openings, rose by 3% at Waitrose, but fell at its department stores by 0.6%.
The partnership said it had created 4,400 net new jobs in the year, with a further 1,900 expected this year.
"Profound changes are taking place in the retail sector and importantly this was a year when we upped the pace of innovation and investment," said chairman Charlie Mayfield.
"That came at the price of some short-term profit, but leaves us in a good place at the start of this year."
The trust-owned partnership said it opened 29 new Waitrose stores last year, as well as a new John Lewis department store in Stratford, East London.
The firm has been rolling out new store formats, including Waitrose convenience stores at petrol stations, and John Lewis "at home" stores, which specialise in homewear.
Waitrose continued to expand its online operation with a new warehouse in Acton, West London, while online sales at John Lewis increased by 26.3%.
However, the company was forced to spend Â£23.8m on its "Never Knowingly Undersold" promise due to price competition on the High Street.

Shillingford, 30, and team-mate Marlon Samuels were both reported to the ICC for suspected illegal actions during last month's Test series in India.
Meanwhile, Samuels, 32, has been banned from bowling his quicker deliveries.
Shillingford's arm was found to extend more then the permitted 15 degrees for his off breaks and doosras.
Samuels exceeded the 15-degree limit for his quicker balls, but he is allowed to continue bowling his standard off breaks.
A batting all-rounder, he has played for the Windies as a specialist batsman before now, although Shillingford - a specialist bowler - now faces withdrawing from international cricket until he remodels his action.
The pair have 14 days to lodge a written appeal to the ICC, although West Indies are currently in the middle of a Test series in New Zealand.
Shillingford and Samuels both played in the first two Tests, although Samuels did not bowl.
The third Test begins in Hamilton on Thursday, with one-day and Twenty20 internationals to follow.
Both players have previously been suspended from bowling in international cricket for illegal actions.
However, they were allowed to resume bowling after undergoing remedial work and further testing.
Samuels was banned from bowling in February 2008 because his arm extended more than the permitted 15 degrees for off-breaks and quicker deliveries.
Although the Jamaican continued to play as a batsman, he did not resume bowling in international cricket until September 2011, having served an unrelated two-year suspension from cricket between May 2008 and May 2010 for passing information to a bookmaker.
Shillingford, from Dominica, was reported after his international debut in November 2010 and banned a month later when his average elbow extension was found to be 17 degrees. He was cleared to return in June 2011.
John Lewis has reported a fall in annual profits and cut its staff bonus for the first time in three years.
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West Indies off-spinner Shane Shillingford has been suspended from bowling in international cricket by the International Cricket Council (ICC).