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Should You Give That Employee A Bonus?

December 15, 2015

By: Crystal Spraggins

When Accounting Principles surveyed more than 500 US HR and hiring managers, two-thirds said their company plans to give holiday bonuses this year, with the average amount expected to be $858.

Eighty-one percent of those same HR and hiring managers indicated employees could increase their chances of getting a holiday bonus by:

  • Staying more motivated and engaged throughout the year (54%);
  • Being more positive or upbeat (43%);
  • Volunteering to take on more job duties (32%);
  • Reminding the company of their accomplishments (22%); and
  • Asking for a bonus directly (13 percent).

The Holiday Bonus: A Mixed-Signal?

Everyone knows the holidays are a time of gift-giving. Merriam Webster defines “gift” as “something voluntarily transferred by one person to another without compensation.”

When you give your employees a “holiday bonus” (and especially if all bonuses are the same or essentially the same, i.e.,  a week’s pay for everyone), your employees wouldn’t be wrong to assume the bonus is a gift and completely unrelated to merit.

In "What Should I Give for a Holiday Bonus?" retired CEO Richard Hayman suggests small business owners consider forgoing the holiday bonus entirely. “If it's a holiday event, then it's expected. Once you're on that treadmill, you can't get off. Business has good years and bad years. What if there is no money to go around or they don't deserve it, or we missed our goals?”

So should you give that employee a (holiday) bonus?

Sure, so long as your intent is to give a gift that requires nothing from the receiver. Otherwise, you may be sending mixed signals while setting a precedent that’ll hamstring your business in the future.

What about Merit-Based Performance Bonuses?

Performance bonuses are an important part of your total compensation package, and, if conceived and executed properly, they are good for motivating and retaining employees.

Unfortunately, however, many programs don’t bring about the intended result. According to a recent survey by Tower’s Watson, 3 in 10 companies plan to give bonuses to employees who didn't meet goal. To quote Bloomberg Business, “companies that differentiate give their lowest performers about 65 percent of the target payout, on average.”

Most of these employees (56%) met expectations but didn’t “exceed” or “far exceed” them. That’s not too bad, but 3% flat out failed to meet expectations, and another 8% only partly met them.

And here’s the thing—a performance incentive only works when given to reward performance the employer actually wants to encourage.

So again, should you give that employee a (merit-based) bonus?

Well, that depends. Is your goal to reward good employee performance, and have they given good performance? Then absolutely! If not, then maybe the answer is no. At the very least, you’ll want to think twice about the behavior you’re actually encouraging versus the behavior you intended to encourage.

Final Words

Pay for performance has become a compensation buzz word, and bonuses are a big part of many incentive plans.

There’s nothing wrong with that, of course, and bonuses can be particularly effective in spurring certain desired outcomes, such as sales outcomes.

On the other hand, there’s nothing wrong with an occasional cash gift that’s unrelated to merit, especially for those employees who’ve endured stagnant wages and reduced benefits during the past six years.

Ultimately, however, whether you decide to offer a bonus and what kind is completely dependent on your resources and your goals. Whatever your choice, though, be clear in your intention for the best result.

Crystal Spraggins

Freelance Writer, Editor, and HR Consultant in Philly. You can find more of Crystal's work at:

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