End of Year Employee Bonuses

Should you bonus employees at the end of the year? The short answer is “probably not.” We have seen little benefit from this procedure. Here’s why:

• The amount of the bonus is usually skewed by what’s happened in the months immediately preceding the decision instead of the entire year.
• Employees don’t see a sufficiently direct connection between the bonus and how they’ve earned it.
• In the first year the bonus is given, the manager/principal will get lots of mileage. But from there forward, employees view bonuses as entitlements.

We recommend instead that you give “spot bonuses” throughout the year. Employees will see a more direct connection between their contribution and the reward. More importantly, though, it will force each employee’s manager to make management decisions. That in itself is the biggest plus.

For example, allocate a certain amount of money to a “bonus pool” for each manager. S/he would be responsible to give that out during the year. After all, the only person really managing an employee is the person making the financial decisions. The funds need to be expended randomly throughout the year, and a large portion of it should not be in cash.

If employees view your bonus tradition as an entitlement and you view it with resentment, try this. Go ahead and do bonuses again this year, but slip a note of explanation in the envelope announcing the new plan for next year. That gives them time to get used to the idea.