Gifts are not incentives, and incentives shouldn’t be gifts

I knew a couple who owned a company with about 20 employees who had what may be the worst incentive distribution plan I’ve ever seen.

The company gave out large holiday bonuses every year at the company party, which was the last day before closing at Christmas. There was no documentation of how the amounts were decided, each employee received what the owners felt they “deserved.”

Worse than that, they gave out the bonuses by putting them in envelopes and hanging them from the company Christmas tree.

Wait- it gets worse. The owners had a standing family obligation for the holidays in another city, so every year they left the employees to celebrate on their own, and to open the bonuses together!

One year things had not gone so well for the company. They had eked out a small profit, but nothing like the highly successful year prior. The owners were determining bonuses, and each was running at about a third of the prior year’s amount.

The owners weren’t particularly concerned. The bonuses were gifts, after all, and they had no obligation to pay them. The employees certainly knew that it hadn’t been a great year, so further explanations shouldn’t be necessary.

They came to one employee who had worked very hard. He had really stood out that year, and was largely responsible for what success they’d had. The owners discussed it, and decided that he needed to be rewarded for his exceptional performance. Instead of a third of his prior year’s amount, they gave him 80%. Since they knew the employees discussed their bonuses, the recognition would be obvious to everyone.

The employee party went as before, with the envelopes distributed from the tree, and all opened at once. The high performer took out his check, read it, exclaimed “Those bastards!” and walked out the door. He never came back or spoke to another person in the company again.

A holiday gift should be just that, a gift. It should never be a major portion of the employee’s compensation. Even if your business structure dictates end of year incentive distribution, keep it separate from the holiday “bonus.” Give turkey, or a ham, or a check for $100 inside a card.

Gifts are gifts. They are tokens of appreciation. Bonuses are rewards for work performance, and must always be tied to specific goals and measurable objectives. In the case above, all the employee had to go on was a yardstick that said “I worked a lot harder this year and they appreciated me less.”

It’s weird how this time of year makes so many business owners start acting paternal (or maternal.) They run a great company 364 days a year, but for one day they want to play Santa Clause or Ebenezer (after the ghosts) by displaying warmth and largess and goodwill towards man.

That’s a great sentiment, but put it in the right place. In January you will want employees who understand they have a boss, not an extra Daddy or Mommy.

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2 Responses to Gifts are not incentives, and incentives shouldn’t be gifts

  1. Brad says:

    John, Merry Christmas! I continue to appreciate your insights into small business ownership and the disease of entrepreneurship. It is true that many of us struggle as business owners at this time of the year, missing the target and the meaning of the Season.

    Thanks for your continued friendship, and all the best for the New Year!

    Brad Elmhorst
    Direct Hit Data, Inc.

  2. airhawker says:

    Great post John. Sounds like our family business over the past 40 years! Your post definately opened my eyes and got me to re-think our holiday party and bonus program for tomorrow night!

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