Year End Bonuses: Incentive or Entitlement?

It’s time for our annual discussion of the Holiday bonus.I pine for the days of my spiritual ancestor Ebenezer, who was offended at the expectation that he would pay Cratchit a whole day’s wages without receiving any work in return. One year I tried telling my staff to “make sure that you are in all the earlier the next day.” (It didn’t work.)

Today, the expectation of employees is that they will not only be paid for the day, but that there should be something more to show that they are really appreciated. That might be a monetary gift, or as is the custom in many small businesses, the “year-end bonus.”

Year end bonuses may theoretically be tied to profits, but since the year really hasn’t ended, they are often just subjective gifts. Owners give themselves some vague justification (the employees don’t need one) such as “We’ve had a good year” or, if cash flow is tight, “We’ve had a tough year.” They then consider seniority, or salary, or what the employee got last year, or the phase of the moon or some other specious excuse for measurement that has almost nothing to do with actual performance metrics, and they attach a dollar number to it.

From the employees’ perspective, the year-end bonus comes in two flavors. 1) More than I got last year, or 2) less than I got last year.

Knowing that, many bosses sit with last year’s table of bonuses, determining whether each should be increased or decreased, and by what percentage in comparison to others. They labor in the incredible belief that this single figure will serve as a performance review, reinforcement for good performers, warnings to those on the fence, recognition for (recent) past achievements, organizational bonding, retention incentive, cultural reinforcement, and a giant leap towards goodwill for all mankind.

Then the owner complains for two weeks that no one said “thank you.” Why should they? No one is sure if what they got was good or bad. They don’t know how they were measured, or whether they were at the top or bottom of the totem pole. No employee wants to look like an idiot by thanking the boss for what might have been a warning.

The holidays are a time for giving gifts. A gift is a token of your esteem for someone. It isn’t supposed to be determined by performance. It isn’t supposed to be calculated as just a little bit nicer or just a little bit smaller than the gift you gave to the next person. It isn’t supposed to be a major part of their family’s income.

Incentive or entitlement? The correct answer is “neither.” If you give out bonuses for performance, or really allocate a portion of profits for the employees, do it after the holidays. Keep the spirit of the season separate from incentives by giving gifts. They should be modest, and fairly even across the board. Make sure you call them gifts. When people know that they’ve received a present, they are more likely to say “thank you.”

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