4 Reasons to Ban the Yearend Bonus

Sure, nobody wants to be labeled a Scrooge. But if you’re among the roughly 50% of U.S. businesses (and shrinking) that still offer traditional yearend bonuses, it might be time to join the 21st century – and plan for something different in 2013.

Too many small business bonus plans operate on autopilot, under “conventional wisdom” that offering yearend bonuses works. But these ritualized holiday handouts can actually undermine your mission, strategy and goals.

“As an employee incentive strategy, the traditional yearend bonus is better suited to the 19th century world of Charles Dickens’ A Christmas Carol than today’s workplace,” says employee recognition expert Michael Levy, CEO of Online Rewards, who’s created incentive programs for a wide range of large and small companies.

In fact, the yearend bonus or gift has already been fading for some time, according to surveys conducted by the human resources firm Challenger, Gray & Christmas. Five years ago, nearly three-fourths of companies surveyed said they offered yearend awards – a figure that’s plunged to just half, and appears headed lower.

More and more businesses are discovering that “automatic” bonuses do little to reward and retain high performers, nor do they help much with morale or loyalty. Yearend rewards are often too far removed from actual positive actions that occur throughout the year to be meaningful. Business owners who drop yearend bonuses are shifting instead to year-round efforts that have proven more effective.

Unless you’re a Wall Street firm (where plump yearend payouts remain a staple of the trade), reviewing your strategy could be a good idea.

Here, BizBest offers four reasons to ban the yearend bounty and look for new ways of getting more bang for your bonus buck:

1. Yearend bonuses have little impact on performance.

Traditional yearend bonuses as applied at most small businesses simply don’t have a significant impact on employee behavior. For the most part, they are symbolic rather than strategic. Even if you’ve “always done it,” bite the bullet and ban the bonus. Today’s employees react more positively to the instant gratification of receiving real-time rewards throughout the year, rather than waiting 12 months for a bonus envelope.

2. Payouts or gifts should be based on performance, not entitlement or tradition.

Some of America’s most innovative small companies are realigning holiday bonus budgets to put them more in step with individual performance, as well as overall business goals and results. Instead of offering yearly lump sum payouts, these businesses are creating continuous reward and recognition strategies that recognize outstanding performance when it happens. These timely rewards are better able to target employees based on individual performance.

3. Year round programs are better at strengthening relationships between employees and business owners or managers.

By offering smaller but more frequent rewards throughout the year, you’ll regularly promote behavior that advances your overall business goals and creates a more lasting positive perception among employees – and customers, too.

4. A “meaningful” bonus might be much less than you think.

Numerous studies show that most employees merely want to be recognized for their ongoing contribution to the business. This doesn’t require a Wall Street-sized check. “Many workers are happy with a $25 gift certificate to a local store or restaurant,” says John Challenger, CEO of Challenger, Gray. “Others would be happy with an extra day or two of paid vacation at the end of the year.” Electronic devices, gift cards, travel vouchers and movie passes often serve as better rewards than cash because they are indulgences the employee might not otherwise experience. Cash often goes toward basic expenses (credit card debt, for example), and is less memorable.

Not about being cheap

This isn’t about cutting costs or being cheap. But done right, your investment in bonuses and rewards throughout the year will improve results and help achieve your business goals.

Instead of the stale yearend approach, consider a variety of employee reward and recognition programs, sales incentive solutions and even customer loyalty programs tied to employee performance. Your goal should be to create engaging and purposeful incentive solutions, not simply a bonus plan that people starting thinking about when the weather turns colder.

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Filed Under: BizFinanceEmployeesFeaturedManagingSmartOwners OnlyTrends

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About the Author: Daniel Kehrer, Founder and Chief Content Officer of BizBest Media, is a senior-level leader in digital media, content development and online marketing with special expertise in startups, SMB, social media and generating traffic, engagement and leads. He holds an MBA from UCLA/Anderson and is a passionate entrepreneur (started 4 businesses), syndicated columnist, blogger, thought leader and author of 7 business and financial books.

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  1. Agreed, in today’s agile and fast changing environment a year-end bonus is like a 5 year plan. Your last point touches on the priceless value of recognition. Showing appreciation is one of the most effective acts you can do to motivate people and it shouldn’t have to cost a lot of money.

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