November 8, 2011 Employees en_US It’s almost the end of the year, and your staff has their hands out in anticipation of their employee bonuses. Here’s what to know. Employee Bonuses: Everything to Consider Before Cutting the Checks

Employee Bonuses: Everything to Consider Before Cutting the Checks

By Kat Boogaard November 8, 2011

From the festive celebrations to the time away from the office, there’s plenty that your employees look forward to about the end of the calendar year.

But, the one thing that likely tops their lists? A year-end bonus.

Nearly 80% of employers hand out a bonus to employees at this time—making it something that most employees not only appreciate, but expect.

And, while your staff is sure to be all smiles when you present them with a year-end reward, making the effort to provide bonuses on top of the usual payroll has some benefits for you as well. Fifty-four percent of employees state that they prefer monetary bonuses, and they would be willing to change jobs in order to receive that benefit.

So, while it might cost you some coin in order to hand them out, bonuses can be a huge help when it comes to retaining your talent.

With all of that in mind, what sort of considerations should you make when deciding what and how much to give this year? Here’s what you need to know.

What Qualifies As A Bonus?

When you hear the word “bonus,” it’s easy to think of cold, hard cash—that’s the most traditional form of a bonus, after all.

However, if you look at the first definition of the word, you’ll realize that it doesn’t have to be strictly monetary:

Something given or paid over and above what is due.

Maybe that’s a fancy appreciation dinner that you host for all of your employees. Or, perhaps it’s an extra benefit—such as additional vacation days.

While most employees tend to prefer monetary bonuses, don’t box yourself into thinking that you need to dig deep into your pockets in order to adequately reward employees (particularly if that isn’t financially realistic for you). Anything that goes above and beyond expectation can be considered a bonus.

3 Different Types of Bonuses

There’s another area that many employers struggle with: Knowing what or how much to give. This all depends on the needs and capabilities of your individual business, of course.

To add some clarity, we’ve broken down bonuses into three major categories: performance, non-performance and non-monetary.

Performance Bonuses

This category likely requires little explanation—performance bonuses are those that are specifically tied to an employee’s conduct and achievements throughout that year, and can be related to several different performance criteria.

1. Bonuses related to a goal or a quota.

First, there are those bonuses that are related to a specific goal or objective that was outlined for the employee. Maybe they needed to hit an aggressive sales quota. Or, perhaps they were required to wrap up a large, complex project by a certain deadline.

Bonuses in this category recognize the fact that an employee met the expectation that was set out for them.

2. Bonuses related to awards and designations.

Beyond just achieving goals, there are other professional development initiatives that might deem somebody worthy of a bonus.

This can involve receiving a professional designation, certification, or licensure that the employee had been working toward, or even being recognized with an award or other honor that brings some positive light and attention to your company.

Those are great accomplishments that often warrant some sort of recognition and reward from the employer.

3. Bonuses related to exceeding expectations.

While the above categories involve objectives that were more planned for, performance-related bonuses can also be awarded for an achievement that was somewhat unexpected.

Perhaps a client, customer, or external stakeholder sent a letter that praised a specific employee. Or, maybe a team member went above and beyond when something needed to be handled in a pinch.

Bonuses don’t only need to be tied to goals that are clearly mapped out. Every now and then, it’s great to provide recognition and reward when it’s unanticipated.

Non-Performance Bonuses

The performance-based model is a popular one, as it adequately applauds great work from employees and serves as motivation for your staff to continue excelling in their roles.

But, there’s no denying that the process can be a little subjective and thus encourage conflict when certain employees feel slighted.

If you don’t want to deal with any potential fallout, non-performance-related bonuses are worth exploring. Here are a few different criteria you can lean on within this category.

1. Bonuses related to longevity.

The concept behind these types of rewards is simple—the longer you’ve been with the company, the higher your bonus.

This type of system rewards loyalty and seniority, and can also encourage employees to stick with you for the long haul.

2. Bonuses related to salary.

You can also offer bonuses that relate to base salary. For example, every single employee gets a bonus that’s equal to 5% of their compensation.

It can be a fair way to do things. However, it’s important to note that those who have a lower salary will thus receive a much lower bonus, and might feel under-appreciated when compared to your top-earners.

3. Bonuses based on a fixed amount.

This is another blanket approach that can help to prevent those comparisons and nasty office politics—simply offer everybody the same amount. Perhaps every single employee will receive $1,000 as a year-end bonus.

Again, it’s fair. But, remember that an employee who earns $30,000 each year will be far more thrilled with a $1,000 bonus than an executive earning $150,000.

4. Bonuses related to milestones.

A year-end bonus itself falls into this category, as it’s based on a specific qualifying event.

However, if you want to even the playing field and ensure that employees feel appreciated throughout the calendar year, you can also tie bonuses to other milestones. Perhaps you’ll offer every employee $100 on his or her birthday, for example.

That’s a great smaller award that doesn’t relate at all to pay grade or seniority.

Non-Monetary Bonuses

Yes, cash is king. But, if that’s not a realistic possibility for your business, don’t think that means you can’t offer employees any type of reward or recognition.

There are a couple of other things you can use to make employees feel appreciated without forcing yourself or your business to feel majorly strapped for cash.

1. Gifts.

You might roll your eyes at the thought of gifting employees with a holiday turkey or a fruit basket. However, remember this old adage: It’s the thought that counts.

Sure, employees might prefer to walk out of the office with a check. But, when it comes to bonuses and rewards, something is always better than nothing. Any effort you can make to demonstrate your appreciation will go a long way in increasing employee engagement.

2. Vacation days.

Here’s one perk that’s technically non-monetary, but sure to be appreciated by employees.

If you want to stray from the norms of money or a gift basket, consider offering a benefit—such as an additional vacation day that employees can take advantage of in the new year.

Your employees are sure to appreciate the gesture—as well as the extra time off from work.

3. Award or other recognition.

Think providing a plaque, paperweight, “employee of the month” parking spot, or some other sort of commendation for employees is cheesy? Think again.

Proper recognition is something that nearly every employee craves. In fact, when asked what leaders could do more of in order to improve employee engagement, 58% of respondents said “give recognition.” Even further, nearly one-third of employees would rather be recognized in a company-wide email from an executive than receive a $500 bonus.

Don’t underestimate yourself. Publicly applauding a job well done will take you far.

Over to You

Bonuses are critical for making employees feel valued and appreciated. And, the close of the calendar year is a standard time to dish them out.

Feeling stuck on how to structure your company’s bonuses? Use the above categories as inspiration. Remember, no matter what specifics you land on for your own business and staff, what matters most is that you make the effort to demonstrate your gratitude.

Easy, accurate, done. That’s payroll, perfected.

Handle withholdings, employee classifications, benefit deductions and more with QuickBooks Payroll.

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Kat Boogaard is a freelance writer specializing in career, self-development, and entrepreneurship topics. Her work has been published by outlets including Forbes, Fast Company, Business Insider, TIME, Inc., Mashable, and The Muse. Read more