One of the great scenes in the classic “National Lampoon’s Christmas Vacation” centers on the holiday bonus. Chevy Chase’s character Clark W. Griswold doesn’t find out until Christmas Eve that his normally reliable and hefty bonus check has been replaced by an absurd membership to a jelly-of-the-month club, which sends him into a yuletide rage.
Holiday bonuses are a big deal, and CEOs will need to think them through, from the boost they give employees to what the business can afford. We often hear stories of outlandish bonuses on Wall Street, or tales of generous CEOs like Jeffery Hildebrand of Hilcorp Engineering, who gave each of the 1,400 employees a $100,000 bonus last year.
That’s of course not realistic for the vast majority of businesses. So here’s a look at the importance of the bonus, and different ways CEOs can handle them. (Just stay away from jelly-of-the-month clubs.)
Budgeting
How business leaders map out a bonus plan is crucial to it being a successful one. A common thread among bonus stories is the precedent that it sets. In a story for Inc.com, Sara Hottman explores some of the advance planning that can go into a bonus program, and features Harry Dannenberg of the small business consulting organization SCORE. He shares that “holiday bonuses meant as tokens of appreciation don’t belong in a business plan,” as Hottman writes. Dannenberg prefers basing the amount on revenue from January through October:
“‘Say it was a good year, I made money, therefore, on the strength of that performance, I can give x,’ he says. But use generosity in moderation, Dannenberg warned. Being too generous in a good year could make for an embarrassing downgrade in a bad year.”
Rewarding high performers
If bonuses are automatic and expected, employees could potentially take them for granted. CEOs can guide bonus programs by emphasizing the connection to excellent job performance, not just the last page on the calendar. Bianca Male examines this for Business Insider, and features Carl Greenberg, founder of Pragmatic HR Consulting.
“Giving a bonus is a good opportunity to communicate to employees their worth to the company and give them recognition for recent past performance,” Greenberg says in the story. “ … If it’s put in the context of, ‘Here’s a way of recognizing how much you’re contributing,’ that then makes the payment a motivator for future performance.”
Have a face-to-face conversation
Delivering the news about a bonus can be a happy moment for all involved. But there should be more information than just the dollar amount or the percentage of the employee’s annual salary. Communication, as always, means a great deal in these times, as Male writes.
“You should never hand out bonuses without an explanation as to how you arrived at that amount; rather, you should meet with every employee and have a face-to-face discussion about it,” she explains. “Not only should employees know exactly why they’re receiving a certain level of bonus (or no bonus at all), but doing so will also prevent any feelings of unfairness or confusion.”
Greenberg says in the story that performance-based bonuses may mean that employees that have not met expectations may have to miss out: “It needs to be communicated clearly: ‘You did not get a bonus because … and here’s what you can do next year.’ So it’s not a mystery, but a logical explanation as to what they can do better in the coming year.”
Money or a gift?
All talk of significant holiday bonuses is irrelevant for a business trying to keep its head above water. Though it may be a disappointment to employees, it may just not be realistic to toss around bonus cash. But that doesn’t mean there can’t be an expression of gratitude for the work performed over the previous 11 months, as Hottman explains.
“If a holiday bonus isn’t an established part of annual pay, a gift is just as meaningful as a little cash — sometimes more so if the cash gift is going to be small,” Hottman writes. Dannenberg advises putting some thought into a small token of appreciation: “You give someone a really small amount, it’s insulting. But give them a nice bottle of wine and something that costs $10, it’s nice. With a nice note, it’s an expression of thanks, a matter of holiday spirit and cheer.”
Time off perks
Here’s an interesting approach to an annual boost for employees. Mark Douglas of marketing company SteelHouse puts a premium on vacation time, and offers each member of his staff $2,000 a year for a trip, or spread over several trips. They can’t decline a trip and pocket the cash, they have to actually get out of the office and out of town, as Chris Weller describes for Business Insider: “Douglas says he wants his team members, many of whom are younger than 30 and haven’t had many other employers, to one day create companies that enact similarly forward-thinking policies.”
“It’s one thing to say ‘You have three weeks vacation,’ like most companies do,” Douglas explains in the story. “It’s another thing to say, ‘You have cash, and if you don’t go on vacation and spend this money, the money literally goes to waste.’ It’s another level of saying this is real.”
Consider competition
As mentioned, some business leaders will set up bonuses based on performance. There can also be the potential for that to backfire to a certain degree because of employees receiving different amounts. In a story for Inc.com, Jay Steinfeld writes, “To employees, anticipating end-of-year bonuses can feel like waiting for a bloodbath in the ‘Hunger Games’ as everyone battles for his or her own piece of the bonus pie.”
“The nature of a ‘bonus’ is that it isn’t an incentive for excellent individual performance — it is a chance for a leader to show his or her gratitude for a great year with a little extra ‘something,’” he writes. “Growing a holiday bonus structure that makes employees and teams feel pitted against one another for a finite number of dollars is both counterproductive and potentially damaging. It’s important to be sensitive to your employees’ expectations around any kind of compensation.”
Clever and practical
Here’s an example of a well-thought-out gift rather than a minimal bonus amount. In a story for Entrepreneur, Geoff Williams tells the story of Arnie Aloff, a manager for a Chicago insurance company. His responsibilities included leading 12 agents, and “because he received commissions from their sales, he wanted to say thanks with a holiday bonus.”
“Being an independent agent himself, he didn’t have an exorbitant amount of funds to spend, so he gave them an I-PASS transponder, a device that allows cars to pass through the numerous Chicago toll booths without stopping,” Williams writes. “They were $50 to purchase and came with $40 in pre-paid tolls — a practical gift for insurance agents often traveling around the city.”
