It’s that time of year when everyone starts to wonder about their Christmas bonus. “Will there be one? How much? How much compared to (insert co-worker’s name)?” Call it a Christmas bonus, call it a year-end bonus, or call it for what it is, an entitlement. That’s right an entitlement. I know I sound a bit “scrooge-like” wanting to take away Tiny Tim’s Christmas fun but this seemingly innocent act of handing out money as a reward for unspecified activities sends a dysfunctional message to the team. Unfortunately most business owners have gotten themselves locked into the “forever” bonus that ends up (in the employees mind) being an expected part of their compensation package. Most have got it spent even before it is handed out.
One could argue that the bonus is a nice way of rewarding people’s contributions to the organization. But in reality, without a clear link to specific performance measures, the bonus is discretionary at best. What seems, on the surface, to be a benevolent gesture can actually backfire for employers who haven’t thought through all the implications of handing out an arbitrary or discretionary bonus.
The surest way to keep people doing what they have always done is to continue to pay them the way they have always been paid. If a bonus is truly a reward for “above and beyond” outcomes, then those desired outcomes need to be spelled out in advance, appropriately measured and reported on, and provide a transparent link between desired behaviors and company outcomes. Giving out a bonus should be a January strategic planning item, not a December “to-do.”
If your client is committed to following through on the dysfunctional compensation this year, you might want to recommend they use this year’s bonus delivery mechanism as a means of establishing a new paradigm for the future. Here are three strategies for ending the dysfunction:
1) Call it a gift not a bonus. A gift is, well, a gift. There isn’t any underlying statement about performance.
2) Give everyone the same gift. Some would argue that the “gift” should be pro-rated based on years of service, salary, etc. Essentially, tying the amount to longevity or comp does not send any message about improving performance.
3) Explain that this is the last year there will be such a “gift.” In the future, bonuses will be tied to specific strategic outcomes.
As an alternative to the three items above, take the amount that would have gone out as a “gift” to all and put it toward a charity or charitable activity that the entire team can get behind. For example, put the money toward adopting and giving one or more families in need the Christmas of their dreams.
If there are some real stand out performers that deserve to be recognized, help your client develop a company recognition program to highlight the achievements of the stars. This will serve two purposes:
1) Let the star performers know their efforts are noteworthy and appreciated
2) Sends a clear message to others about what desirable behavior looks like.
Come January, make a date to sit down with your client to talk over a real bonus strategy; one that can be tied to strategically significant outcomes. We will continue this discussion in the January Mentor in a Minute Newsletter. Specifically, we will look at three key comp strategies: Profit Sharing, Goal Sharing, and Gain Sharing.