End of Year Planning: Bonuses
A year-end bonus is a sum of money paid to employees at the end of the year. It's a wonderful program to have and can be a strong retention tool, but can go oh so very wrong if not implemented well. How can you stop this from happening? Think about your corporate culture, your workforce and what motivates them, and decide what works best for you.
Your bonus program can be calculated in a number of ways – a percentage of hours billed, a percentage of sales, a percentage of the company's profits. But maybe you have a percentage-phobia; you can also calculate bonuses by what the company can afford, how many years the employee has worked for you or it can be based on merit.
What's important to note and follow through on with any incentive or bonus program is to not simply reward "showing up." If all an employee has to do to get a bonus is stay on the payroll, you are defeating the purpose.
So, going back to you and your business – here are three tried-and-true bonus programs you can easily implement to motivate, retain, and reward your employees.
1. Performance Bonuses
How this works: Each employee is given an individual goal at the beginning of the year and rewarded with a bonus at the end of the year if they achieve it.
Why this is effective: The "carrot at the end of the stick" will work to motivate employees to do the best job they can, which typically results in higher profits for the company. Supervisors can help keep employees on track with quarterly reviews and progress towards meeting those goals is clear. This will also result in less entitlement because everyone will understand up front that if goals are not met, they won't receive a bonus or will only receive a portion of what was originally discussed.
2. Non-Performance Bonuses
How this works: Everyone in the company is awarded a bonus as a means of showing your appreciation for a job well done.
Why this is effective: Employees are rewarded with a percentage of their salary (which, of course, means larger bonuses to your higher-paid staff) or a set amount is given to everyone. By making sure that everyone in your company receives a fairly distributed bonus, you avoid any resentment among your employees.
3. Longevity Bonuses
How this works: When awarding longevity bonuses, divide employees into groups according to the number of years they have worked for you and then give the individuals in each group a specific amount of money based on your budget. For example, employees with 5 years of service receive $500, employees with 10 years of service receive $1,000, and so on.
Why this is effective: According to the US Bureau of Labor Statistics, people 35 years and younger change jobs every 18 months and people of all other ages do so every three years. The longer your employee stays with you, the larger his bonus will be which may motivate your employees to stay put.
And really – there is a fourth program.
If your cash flow isn't sufficient to cover monetary rewards for the entire staff, think about giving turkeys or holiday baskets filled with holiday treats, grocery store or gas cards, gift certificates to a favorite local restaurant or paid-time-off.
Year-end bonuses are a great way to reward your employees for a job well done. But don't forget that a simple "thank you" or "great job on Project X" throughout the year goes a long way.