Holiday Bonuses—In this Economy?

For many businesses, the holiday season means bonus time. But in a vise-tight economy, such perks aren’t sensible or realistic for many businesses. Before you scrap bonuses altogether, however, consider your options.

• Even if you typically offer year-end bonuses, you don’t have to give them out this time around. But it’s essential to communicate any new policy to employees now, not on the eve of the holidays or at year’s end. Some employees have come to expect that year-end bonus. So let them know as quickly and clearly as possible they won’t receive that same reward this year ASAP-it might help prevent a Clark Griswold-like meltdown a la National Lampoon’s Christmas Vacation.”I’ve found over the years that a lot of companies fail to communicate,” says Robin Throckmorton, executive human resources strategist and president of Strategic Human Resources, Inc. in Loveland, Ohio. “Employees will have empathy for the employer who comes to them and says, ‘Bonuses are based on company profitability, and profitability is down. I’d really like to give bonuses but I can’t.’” While you’re at it, make certain employees know that your own compensation isn’t going up, either.
• Eliminating or curtailing holiday bonuses doesn’t necessarily make you a Scrooge. In fact, you are on trend. Consider this: In 2006 two-thirds of companies said they would not award holiday bonuses, according to a study by human resources consultant Hewitt Associates. And the economy has only gotten tougher since that survey.
• If the economy is forcing you to revisit your holiday bonus plan, take this as an opportunity to reconsider bonuses altogether. Eight out of 10 companies in that same Hewitt Associates survey said they offer performance-based bonuses instead of holiday bonuses. And for good reason. One incentive aimed at increasing sales and profits-and reminding employees that they are valued and appreciated-is to tie monetary rewards to employee performance. This is especially critical during tough economic times.The goal is to create clear, easily communicated criteria for judging who gets performance-based bonuses-and how much they get. “Think of the public scrutiny rule,” Throckmorton advises. “Be sure you are able to ‘defend’ your actions, not only to your employees but also legally.”
• Studies have also shown that other employee incentives can work just as well as monetary rewards, as long as employees are already compensated fairly. Ninety-two percent of employees say they will stay at their job for less money if they can achieve things such as work-life balance and recognition, according to a study by the consulting firm Employee Hold’em.

That’s why you might consider alternatives to cash this year. An increasing number of companies offer gift cards, company products, food baskets or merchandise from catalogs instead-all of which can cost your business less than cash rewards. In 2007, businesses planned to give employees gift cards more than any other category of gift, according to the American Express Business Gifting survey.

If you don’t have the budget to spend anything on end-of-year gifts, look to alternatives: additional paid time off, better parking spaces or more flexible work hours.

And remember to show employees how much you value them by encouraging input on end-of-year rewards. By saying, “I can’t give bonuses this year, but I appreciate your hard work. What can I do for you?” you’re reminding employees that no matter the state of the economy, they’re valuable to you and your business.

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