Photo: By Jo Naylor on flickr
Note: This article was originally published on Open Forum.The signs are everywhere: Thanksgiving turkeys are on sale, red and green tinsel is crowding store windows, and all of your friends are frantically making plans for New Year’s Eve.
The holidays are rapidly approaching, and that means it’s time for small business owners to figure out their end-of-year bonuses.
Carl Greenberg, Ph.D., founder of Pragmatic HR Consulting, tells us that holiday bonus decisions should never be last-minute or blanket decisions. “There should be a process laid out,” he says.
If you’re handing out bonuses for the first time, or if you’re just not sure how it should be done, it can be a confusing decision. Here are three important guidelines to keep in mind as you go about the process.
Bonuses should reflect an employee’s real contribution to the company.
“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. That means bonuses should honestly reflect how much each employee has contributed to the company in the past year. Too often, Greenberg says, bonuses are viewed as an entitlement that employees expect to receive every year, regardless of their contributions. “But, if it’s put in the context of, ‘Here’s a way of recognising how much you’re contributing,’ that then makes the payment a motivator for future performance.”
Bonuses should always be accompanied with a face-to-face discussion of your employee’s performance.
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. 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. “That requires communication,” Greenberg says. “It shouldn’t be a general statement that management, at their discretion, gives out bonuses, or that it’s a ‘behind closed door approach’ to how bonuses are decided.”
And yes, it is acceptable to refrain from giving your lowest-performing employees any bonus at all; Greenberg recommends giving significantly higher bonuses to the top 5 – 10 per cent of your highest-performing employees, and not hand out any bonus money to the bottom 5-10 per cent of your lowest-performing employees.
However, these low-performing employees are the ones you need to talk to most of all. “It needs to be communicated clearly: ‘you did not get a bonus because… and here’s what you can do next year,'” Greenberg says. “So it’s not a mystery, but a logical explanation as to what they can do better in the coming year.”
Non-monetary bonuses are still effective motivators and a great way to reward people.
If you are struggling to keep your business open, like many small-business owners are right now, you shouldn’t feel guilty about not being able to give out end-of-year bonuses. “Intangible recognition is a great way to reward people,” Greenberg says. You could, for example, hand out plaques to your top employees to thank them for their hard work and great performance. Or, Greenberg suggests, you could write them each personal notes acknowledging that, if times were better, you would have liked to reward them financially, and let them know that they are valued and appreciated by your company. “That goes a long way, especially if it’s from the owner of the company, or someone who is not the direct boss,” Greenberg says. “A personal note is a real motivator, and, quite frankly, it should not just be done at the end of the year; it should be done whenever someone does something extraordinary.”
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