Rethinking the Year-End Bonus

We’re coming up on the holiday season and the end of the calendar year. For many businesses, large and small, that means it’s time to get those holiday bonus checks ready. And many employees have already started dreaming of the ways they’ll spend the money they’ve grown to expect, year after year.

But some have started to question the wisdom of handing out annual year-end bonuses. It’s true that employees enjoy the extra money in their pocket and the bonus handout will temporarily lift morale. But studies have shown time and again that purely monetary incentives fail to provide long-term motivation. And when employees come to expect a large bonus every year, at some point the payout starts to be seen as part of their compensation, rather than a thank you or reward for a job well done. Additionally, if you business has a down year and you can’t afford to give out bonuses, your employees will feel cheated. 

With all that in mind, you might be wondering how you can reward employees if you’re not going to give an annual bonus. Here are some ideas.

Base bonuses on direct performance

One of the biggest demotivators for top-performing employees is seeing everyone receive the exact same compensation or reward, year after year, regardless of performance. This pattern demonstrates to your employees that their individual contributions aren’t noticed or valued, and your best employees will quickly learn that it doesn’t pay to go the extra mile, make full use of their abilities, or contribute their best ideas. They’ll inevitably follow one of two paths:

  • They’ll become mediocre employees themselves
  • They’ll go somewhere that does appreciate the value they bring

The year-end bonus can easily fall into this trap of overly-equitable compensation. One way to handle this is to tie bonuses to performance. Establishing a performance review plan should be your first priority.

By basing bonuses on performance, you’ll motivate your employees to fully utilize their skills and work to become valuable contributors for your business. 

Reward your employees throughout the year

A bonus or reward will be much more meaningful to the employee and have a better long-term impact on your business if it’s tied to a tangible achievement or success, and when it’s given at the time of the achievement. 

One of the most motivational things you can do for your employees is letting them know their work is making a difference. So you could consider setting up a bonus program based on well-defined metrics that are tied to your business objectives, and reward your employees throughout the year when they do something (individually or as a team) to meet those metrics and advance your business. The reward could be bonus checks, lunch or dinner celebrations, vacations, or anything that makes sense for your business.

Find a reward that isn’t a check

That brings us to another idea for year-end bonuses. It’s become the norm that the year-end bonus is cold hard cash. And who doesn’t love money? 

But there are many ways to reward employees, or give gifts to employees, that aren’t monetary. These gifts can be meaningful expressions of gratitude and can be great alternatives when your business doesn’t have a lot of money in the savings account to give out at the end of the year. 

Consider offering employees extra vacation days, surprise days off during the holiday season, trips as incentives for meeting goals, or fun events throughout the year (like employee barbeques). And around the holidays, even a bottle of wine and a note from the owner can go a long ways towards making employees feel appreciated.

Consider bonuses that don’t cost anything

The reality of business is there will be up years and there will be down years. There will be years when your business can’t afford to give out monetary bonuses at the end of the year (or at any point throughout the year). 

How can you show your employees that you value them? 

There are many ways to reward your employees that don’t cost a cent. One large software company lets their salespeople work from home one day a week when they meet their sales goals. 

This demonstrates one of the best bonuses you can offer your employees—flexibility. Your employees are real people with a lot going on in their lives. Rewarding them with opportunities to work from home on certain days can be a huge gift that goes a long way towards making them feel valued. 

Everyone has times of the day when they feel energized and times when they feel drained. Letting your employees work flexible hours so they can make maximum use of those high-energy times will boost productivity and make your employees feel trusted. 

Different people work better in different environments. Having flexible work spaces will help your employees feel comfortable in their workplace (where they spend a lot of their time). Things like windows that can be opened, standing or moveable workstations, and opportunities to express personality will allow your employees to create a space where they want to be. 

These are just some ideas to reward your employees in ways that will motivate them and show them you value their contributions. That said, if your business has had a great year, it’s highly likely that your employees are a big part of your success. So don’t be afraid to give them that holiday bonus to celebrate. Or if you’re selling your business, you may want to share the profit with the people who helped you build it (your employees). 

Just remember, especially during this time of year, that the year-end bonus check isn’t your only option.

Posted on December 9, 2015 and filed under Business Consulting.