Did you know that almost 30% of small businesses offer year-end bonuses? In larger companies, this number is much higher. Offering year-end bonuses is a great way to boost not just year-end morale, but also effort throughout the year. Employees who know that a big bonus check might be coming at the end of the year are more likely to give it their best throughout the year.
So how do you do year-end bonuses? How do you determine the amount? How do you decide who gets bonuses and who doesn’t? Read on.
==> Set Expectations Early
The expectations for year-end bonuses should be set early. The last thing you want to do is surprise an employee who was expecting a bonus check with bad news. You also don’t want to reward one employee while not rewarding another, unless expectations for who gets rewarded and who doesn’t are crystal clear.
Have a clear year-end bonus policy and make sure it’s clear to everyone in the company.
==> Criteria for Handing Out Year-End Bonuses
How do you know if you should hand out bonuses this year?
Generally this is determined by whether or not you hit your targets. If your company as a whole exceeded revenue targets, you hand out bonuses. If not, you don’t.
Some companies hand out bonuses no matter what the company’s finances look like this year. Either way works, but again make sure expectations are set early.
==> How Much Should You Give?
Again, this varies a lot from company to company.
The most common way to give bonuses is as a percentage of base pay. If someone earns $80,000 a year and you want to give a 15% year-end bonus, you’d give them a $12,000 check.
Another common method is a percentage of deals generated, deals closed or other performance metrics. For example, you might give a top executive 10% of the deal value of a big sale he brought in.
One common method that doesn’t work so well is the manager ranking system. Essentially, managers rank employees and recommend whether or not each employee should get a bonus. This method works, but often breeds all kinds of office politics as employees vie for the manager’s goodwill come bonus time.
Finally, you have to worst method of all: ad hoc. Top management simply gives what they feel they want to give each year. This is a terrible way to handle bonuses, because it creates uncertainty, office politics and doesn’t encourage people to work hard.
In short, try to have clear criteria for who gets bonuses, what the bonus amounts will be and under what conditions your company pays out bonuses. Make sure those metrics are tied to performance metrics and your bonuses will more than pay for themselves in raised productivity.