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The Year-End Bonus: To Give or Not to Give?

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Duncan Hall

So, you’ve had a good year. Income is up, expenses are down – the company is thriving. And now comes the question on the minds of everyone who works for you – is the company going to share its good fortune with the people who made it possible?

Yes, it’s year-end bonus time.

Or not as the case may be.

But how do you, as an employer, decide whether to award a year-end bonus?

Well, it depends why you are giving a bonus at all, says Ky Kingsley, the Los-Angeles-based vice-president of Robert Half Finance & Accounting, North America, an expert on career growth and development.

“Some companies give bonuses as a way of thanking their employees for their contributions and do not tie them to specific metrics,” she writes. “These are usually viewed as more informal holiday bonuses and may be more nominal than performance-based bonuses. However, these holiday bonuses also create goodwill with employees and contribute to creating a positive company culture.

“Companies may also offer a one-time bonus as an incentive for employees or teams around a specific project or goal. For example, they may be planning a new division, initiative or relocation that will require a significant amount of time or commitment from the staff. These bonuses are also often structured with specific metrics and goals.”

Employers can benefit from giving bonuses in a variety of ways, she writes.

“One benefit of bonuses is they give you a more flexible way to compensate your employees than salaries alone,” Ms Kingsley says. “Employers can decide how to structure their bonus programmes and what types of bonuses they’ll offer, based on individual, team or company performance — or a combination of those.

“Another benefit is improving staff retention. Aside from a competitive salary, professional development and work-life balance, workplace recognition is a significant strategy for keeping talented members of your team on board.”

Doug Soares, managing partner of management consulting and outsourcing company Expertise, said that “annual bonuses are quite common in Bermuda in non-unionised workplaces.

“These vary from relatively low value amounts given at Christmas time to very large amounts paid out after the organisation’s financial year-end,” he says. “Typically, when amounts are given at Christmas time, they are considered gifts, the inference being it is not guaranteed and is discretionary. However, when the amounts are large, meaning 10-50 per cent of annual salary, it is common for objective criteria to determine some, or all, of the amount paid. Management discretion sometimes plays a part in it, but the financial performance of the company or employee’s business unit tends to play a key role along with the employee’s personal contribution to achieving the results.

“Employers that carefully design an annual bonus scheme typically benefit from higher employee productivity. When employees know their personal productivity directly results in greater rewards, they tend to produce more. Conversely, employers that simply pay for time actually motivate employees to produce less.

“Employers who recognise this dynamic realise that it is both fairer and more profitable if you pay for output and results rather than merely inputs such as time and effort.”

Soares says there are other ways that employers can reward employees aside from cold, hard cash.

“Most well-designed bonus schemes are self-funding. If productivity goes up, the employer pays more. If productivity stays the same or decreases, bonuses do not get paid. But not all employees conduct work that is easy to measure, and many employers do not have profit margins sufficient to pay cash bonuses which are significant.

“For such workplaces, it is not uncommon for employers to give non-cash awards with high perceived value. In Bermuda, airline tickets are common. That’s because the perceived value of a pair of tickets to New York is far greater than the actual cost. Similarly, if an employee enjoys fine wine, the value of receiving a bottle of fine Bordeaux is greater than its cost because of the thoughtfulness of the employer and the experience of drinking the wine. Employers that are thoughtful often get more bang for their buck because there is no love in receiving cash from your employer.”

Even a simple ‘thank you’ at year-end for a job well done can be beneficial, he says.

“A genuine thank you, meaning heartfelt appreciation felt by employees, will always do more to retain and motivate people than paying cash,” Soares says. “The best employers, of course, are those that have both intrinsic reward systems that demonstrate appreciation for a job well done as well as extrinsic rewards which link some of an employee’s compensation to their productivity. Most employees like the opportunity to earn more if they perform well and exceed expectations.”

 

 

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