Let’s talk about holiday bonuses

Let’s talk about holiday bonuses

We have written much over the years about employee bonuses and incentives. Generally, the bonuses discussed in past years have been performance based and generally directly linked to individual or unit results.

This month we look at holiday bonuses which are quite different from most performance-based bonuses and reward methods. Here are three examples of those differences:

  1. They are generally paid or offered to all company employees, although some firms (but not all) exclude sales forces, managers or executives who regularly participate in other variable pay arrangements. Hence, lower-level employees are the most common recipients of a holiday bonus.
  2. They are universally quite small in size. It can be denominated in weeks of salary (often 1 or 2 is common) or in multiples of $100 bills. In any event, the larger the job, the larger the amount of bonus paid. The simplest method is to use salary multiples as the payout “yardstick.”
  3. The holiday bonus is generally designed and meant to simply reward the recipient for providing a year of loyal service. It can also be related to company overall performance, but that must be done carefully to avoid both confusion and creating unfulfilled employee expectations.

Why do it? Believers in the holiday bonus say that it can be a unique opportunity for top management to communicate positively with employees whom they do not normally speak with or “touch,” and demonstrate an appreciation for their contribution. At its best, the bonus can be a team binder and “thank you” all wrapped up in a single act of company generosity.  

But not every company thinks holiday bonuses are such a good idea. Some question whether they are getting anything for adding another5-10% to the annual payroll expense with a holiday bonus. Why not just add the extra amount to salary and deliver it throughout the year? Or just save the money and not pay a holiday bonus at all.

Others fear that regularly paying employees (say) a week’s pay at year end will be viewed as a benefit by employees, and a lack of future year-end payments (for any reason) will be viewed as a loss of benefits.

Are you unsure about using holiday bonuses? Based upon our experience, let me suggest  some practices that are often present in successful holiday bonus plans:

  • Keep it simple by including every employee in the holiday bonus, with the exception of company executives or select top managers.
  • Pay holiday bonuses in multiples of a week’s salary. And in any given year, every eligible employee receives the same salary multiple—manager or clerk.
  • Plan to vary the payout each year as a multiple of salary from zero to 2 weeks. Bonuses should be determined based upon some simple measure of company success. Then communicate to your employees why the decision was made. Leadership should deliver the news, either good or bad.
  • Again, demand simplicity in standards of performance and success—for example, growth of 5% in revenue next year or some other unambiguous measure everyone will understand. And if sales growth achieved during the year is actually between 4-6%, one week’s pay is earned as a holiday bonus.  Larger or smaller bonuses naturally follow.

And, do not forget to tell your employees how they are doing against that single (all-important) company goal every three months. You do not want to build any employee holiday-bonus expectations that will not be fulfilled—a week before Christmas.

We recognize that the above is more complex than just giving everybody a week’s pay, or a frozen turkey for that matter. But we feel that it will mean more to employees when they have been acknowledged to be part of the team that earned it.

And, $500 in cash on December 15th is always more valuable than $500 in matching funds in their 401(k) that they will not be able to touch for another 30 years.

So, are you going to put on that Santa suit this year?

Wilkening & Company has assisted scores of clients in the design & implementation of incentive or bonus plans for all types and levels of employee. If you have questions, or want to play Santa this year, give us a call at (847) 823-5090, bob@wilkeningco.com.

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