Rethinking the Year-End Bonus

We’re coming up on the holiday season and the end of the calendar year. For many businesses, large and small, that means it’s time to get those holiday bonus checks ready. And many employees have already started dreaming of the ways they’ll spend the money they’ve grown to expect, year after year.

But some have started to question the wisdom of handing out annual year-end bonuses. It’s true that employees enjoy the extra money in their pocket and the bonus handout will temporarily lift morale. But studies have shown time and again that purely monetary incentives fail to provide long-term motivation. And when employees come to expect a large bonus every year, at some point the payout starts to be seen as part of their compensation, rather than a thank you or reward for a job well done. Additionally, if you business has a down year and you can’t afford to give out bonuses, your employees will feel cheated. 

With all that in mind, you might be wondering how you can reward employees if you’re not going to give an annual bonus. Here are some ideas.

Base bonuses on direct performance

One of the biggest demotivators for top-performing employees is seeing everyone receive the exact same compensation or reward, year after year, regardless of performance. This pattern demonstrates to your employees that their individual contributions aren’t noticed or valued, and your best employees will quickly learn that it doesn’t pay to go the extra mile, make full use of their abilities, or contribute their best ideas. They’ll inevitably follow one of two paths:

• They’ll become mediocre employees themselves
• They’ll go somewhere that does appreciate the value they bring

The year-end bonus can easily fall into this trap of overly-equitable compensation. One way to handle this is to tie bonuses to performance. Establishing a performance review plan should be your first priority.

By basing bonuses on performance, you’ll motivate your employees to fully utilize their skills and work to become valuable contributors for your business. 

Reward your employees throughout the year

A bonus or reward will be much more meaningful to the employee and have a better long-term impact on your business if it’s tied to a tangible achievement or success, and when it’s given at the time of the achievement. 

One of the most motivational things you can do for your employees is letting them know their work is making a difference. So you could consider setting up a bonus program based on well-defined metrics that are tied to your business objectives, and reward your employees throughout the year when they do something (individually or as a team) to meet those metrics and advance your business. The reward could be bonus checks, lunch or dinner celebrations, vacations, or anything that makes sense for your business.

Find a reward that isn’t a check

That brings us to another idea for year-end bonuses. It’s become the norm that the year-end bonus is cold hard cash. And who doesn’t love money? 

But there are many ways to reward employees, or give gifts to employees, that aren’t monetary. These gifts can be meaningful expressions of gratitude and can be great alternatives when your business doesn’t have a lot of money in the savings account to give out at the end of the year. 

Consider offering employees extra vacation days, surprise days off during the holiday season, trips as incentives for meeting goals, or fun events throughout the year (like employee barbeques). And around the holidays, even a bottle of wine and a note from the owner can go a long ways towards making employees feel appreciated.

Consider bonuses that don’t cost anything

The reality of business is there will be up years and there will be down years. There will be years when your business can’t afford to give out monetary bonuses at the end of the year (or at any point throughout the year). 

How can you show your employees that you value them? 

There are many ways to reward your employees that don’t cost a cent. One large software company lets their salespeople work from home one day a week when they meet their sales goals. 

This demonstrates one of the best bonuses you can offer your employees—flexibility. Your employees are real people with a lot going on in their lives. Rewarding them with opportunities to work from home on certain days can be a huge gift that goes a long way towards making them feel valued. 

Everyone has times of the day when they feel energized and times when they feel drained. Letting your employees work flexible hours so they can make maximum use of those high-energy times will boost productivity and make your employees feel trusted. 

Different people work better in different environments. Having flexible work spaces will help your employees feel comfortable in their workplace (where they spend a lot of their time). Things like windows that can be opened, standing or moveable workstations, and opportunities to express personality will allow your employees to create a space where they want to be. 

These are just some ideas to reward your employees in ways that will motivate them and show them you value their contributions. That said, if your business has had a great year, it’s highly likely that your employees are a big part of your success. So don’t be afraid to give them that holiday bonus to celebrate. Or if you’re selling your business, you may want to share the profit with the people who helped you build it (your employees). 

Just remember, especially during this time of year, that the year-end bonus check isn’t your only option.

Perceived Indifference Checklist: See if You Pass or Fail

Do you make decisions through the eyes of your customer?

Do you follow the golden rule or the platinum rule?

The Golden Rule is defined as treating others as you want to be treated. But the Platinum Rule goes a step further. It asks that you treat others as they want to be treated.

Research tells us that 7 out of 10 customers will stop doing business with you because they believe you just do not care. How many times can you say you really don’t care about your customers – just not that often.

Because of so many service and product choices your customers can easily Google up another vendor. That’s concerning so have a plan to fight perceived indifference.

First, it’s important to consider that customer’s expectations have changed over time. It’s no longer just about great service. We all now want a great, memorable experience. Loyalty to a vendor is much less important than getting what feels best for you.

A streamlined business operation should be built with careful consideration of customer satisfaction. We want to do business with businesses we know, like and trust and one that takes care of us.

Walk a mile in their shoes and Try on their rose colored glasses are two sayings to revisit and reconsider when rooting out what really matters to our best clients and prospects.

Reality is in the eye of the beholder. Get some input from customers and colleagues and create a plan that will assure your customer with the perception that you are different. You are the vendor that understands their wants and their needs and you value that.

Perceived indifference checklist

Do you answer your phone by the 2nd ring every time?

How about ask for permission to put the caller on hold?

Does anyone hold the line for more than 30 seconds?

Do you thank your customers for calling? Visiting?Do you refer to customers by their name?

Is thanking your clients for using your business a common practice?

How timely is your team for customer/client meetings?

Do you avoid making your customers wait?

Are product and services delivered when promised?

Is there a heads-up given if problems arise?

Is there a documented process for mistake and problem resolution?

Is your return phone calls/e-mails policy within the same day (within 24 hours)?

Do team members take responsibility for helping customers?

Do you ask for more information when customers ask for a quote or a price?

Is there follow up after delivery of a service or a product?

Do you stay in touch with customers regularly?

Do you ever surprise your customers with a gift?

Do you keep your customers informed about what is new in your business?

Do team members know why the customer is “king”?

Do you thank your internal customers (team members) for what they do for you and your business?

This checklist is an important tool in your sales, marketing and customer service tool kit. 

Celebrate when you can honestly answer yes and be willing to dig and investigate your customer’s experience when your answer is no to the preceding questions.

Is incorporation the right choice for my business?

For this the last post in our series on tax structures and choosing the right one for your start-up or small business, we will focus on corporations. 

What is a corporation?

A corporation is defined first and foremost as a separate legal entity distinct from its owners. Corporations have many of the same rights and privileges as individuals. Corporations can sue and be sued, enter into contracts, loan and borrow money, own assets, hire and fire employees and pay taxes.

The main reason for choosing incorporation is protection of personal assets. Because of the limited liability aspect of incorporating shareholders enjoy profits through stock appreciation or dividends but are not personally liable for company debts.

Corporations can exist in perpetuity regardless of persons involved leaving, dying or divesting in the business. There are three main types of corporate classifications, General Corporations, C-Corporations and S-Corporations.

The three main types of corporate classification

General Corporations - With this type of business structure the shareholders are the owners of the company. The number of shareholders allowed to invest in the company is unlimited. The stock or shareholders are not personally liable for company debt.

The personal liability of stockholders is generally limited to the amount of their investment. This is the most common type of corporate class structure. Advantages of forming a General Corporation include better access to capitol and certain tax-free benefits. However, this type of structure is often subject to more state and federal regulations.

C-Corporation - The first main distinction of a C-Corporation from an S-Corporation is that C-Corporations are taxed as an entity and profits are simply distributed as dividends. C-Corporations do not have to file financial statements and have a great deal of business flexibility. However, C-Corporations must have a director who offers available shares for sale to current investors before making them available to the general public. C-Corporations are typically big name brands.

S-Corporation - This type of structure is fairly common for small and medium size businesses that want both the protection of personal assets and the “pass through” taxation of a partnership structure. An S-Corporation’s profits, losses and tax liability are reported on the personal income tax returns of the owners or shareholders. Thus an S-Corporation avoids the double taxation of a C-Corporation. This model is advantageous for businesses with many owners or shareholders.

How do I decide which tax structure is best for my business?

In our series on deciding which tax structure is best for startups and new businesses we have covered Sole Proprietorships, Limited Liability Companies, Partnerships and Incorporation. We have provided some of the key points, pros and cons of each to help guide new business owners in making the right choice. However, because each business and each entrepreneur is unique it is a good idea to get some professional advice about your new venture.

Tom Bulger, CPA can help you weigh the pros and cons of each type of business structure. Tom believes in entrepreneurship and wants to help you succeed in business. He has been helping people achieve their business goals for over 25 years. Talk to Tom Bulger, CPA today.

Do you have questions about choosing a tax structure for your startup or small business? Post your thoughts and tell us about your new venture in our comment section below.

Check back for our next post on tips for managing your cash flow.