November 1, 2009

It’s Time to Think About Christmas/Holiday Bonuses

By Paul Bieber

Yep, it is that time already. How much can you give, to who, and most importantly why? If the why is “because you did it last year and the year before that,” it is time to think twice. The rules of business have changed in the last twelve months. Companies are changing; if they are not, they are going out of business.

Giving a bonus should not be based on tradition, unless presented in an employee manual as part of yearly compensation, or as part of a negotiated contract. Deciding to give a bonus should be based on three factors:

  1. Was the overall business successful? If the company lost money over the last twelve months, or had negative cash flow, it is hard to justify funds to cover bonuses.
  2. Did the specific employee do his job as requested, or did she/he stand out from the crowd, doing more than expected?
  3. Do you, as the owner/manager, feel strongly about giving a gift at this time of the year to some or all employees?

Let’s look at one. If you made money, then by all means thank your employees. Thank them with your words, and your checkbook. A business that was profitable in the last year is indeed rare. Share with your employees as much as you can, for along with your leadership, they brought you to this profitable point.

On the other hand, if you lost money, or your cash flow is negative, it is time to consider not giving a bonus. Even though you have paid one for many years, this year is different; most employees know the economy has hurt business. Meet with your employees as early in the holiday schedule as you can, so they can predict their income and adjust their spending patterns. Any employee who vocally or publicly complains about no gift, is not a team player. Do what you may with this thought.

It is easy for me, sitting in my office to tell you not to pay a holiday bonus. Sure is. My only employee is my wife, Elaine. But, if you made little or no profit, you have to change the rules this year. Yes, it will hurt. But it will hurt less than going out of business in March when your cash is completely gone.

Tell your employees now there will be no bonus next month. Explain to them the facts of your business, and that you are equally upset as they are.

Make sure you didn’t just buy a new truck or a car for yourself. Don’t take a winter vacation this year either. Two weeks on a tropical island, even if it is your 25th anniversary blows all credibility you had. Don’t take advantage of year-end planning by buying a ton of inventory.

Two. You have a couple of employees who worked their tails off, far and above what you would have expected. They were leaders and motivators of others and contributed heavily to holding the company together. You want to give them something to say thank you, and make a point of it to the others that those who worked hard will get a bonus. Sounds like a good idea….until you answer this question–“Do you have a valid employee review system that details the excellent work of some and the substandard work of others?” If not you really should not make this payment. Here is one possible scenario. The two great employees have green skin and brown hair, and the two weaker employees both happen to have blue skin with brown hair. Bet you a dollar to a donut, that the blue skin employees will file a discrimination complaint, and they will probably win. Even if they don’t win, you will spend time and precious money defending what you thought was a nice gesture on your part.

If you still want to take care of your key people, understand that it will get out to the rest…it always does. The quietest way that I know is to give a VISA gift card, that the employee can use just as cash. Impress upon the employee not to mention this, and hope that works. At year-end, be sure to include the value of the card in their gross wages.

By far, the best system of giving bonuses is based on the actual work each employee does, not seniority. You will get a much bigger bank for the buck if you reward the people who deserve it. You MUST have an employee evaluation system in place to do this well, and to avoid problems. Start this now, so it is in place for next year. You will be well ahead of the game.

Have questions on employee review systems? Feel free to give me a phone call at 603-242-3521 and I will gladly answer your questions.

Three. If you want to give a gift at this time of the year, then do it. It is your money to distribute, and if it makes you feel good, then go ahead. Give it based on seniority, or equal amounts to various departments. Remember, if you give different amounts to similar employees, you should have a review program.