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Do Year End Bonuses Motivate?

End of year bonuses, particularly during these economic times, are being evaluated closely by businesses large and small. This issue becomes especially sharp with the generally limited-budgeted small business, however. Overall, I would say that, in general, these discretionary bonuses do little, if anything, to motivate employees. They do generate warm feelings and goodwill, but those feelings fade as soon as the money is spent.

If the goodwill they generate among employees is your goal, then have at it. Let me recommend, for maximal impact, these disbursements be awarded on the last working day before Thanksgiving. That way the employee can use the money to shop on “Black Friday.”

If your purpose is to actually motivate employees, then you need to take a different approach. It will require more effort on your, the small business owner’s, part, but will be well worth the investment.

Start planning for these non-discretionary year-end bonuses at the beginning of the year and incorporate the potential to earn them when you discuss performance objectives with your employees. These performance objectives must be based on and support your overall business strategy and be S.M.A.R.T. That is, Specific, Measurable, Attainable, Realistic, and Time-bound. That way, they are truly objective and there will be no room for any subjectivity. You can also add an element that ties a part of it to the earnings and profitability of your business.

From there, it will be important to codify this in writing, and review it – and the employee’s progress toward earning it – at each performance review during the year. It is this consistent review that will keep this fresh in your employees’ minds and serve as a key motivator. Do not just “fire and forget,” or mention it early, and not address it again until the year’s end. That gives the program the perception of being capricious and arbitrary – an obvious de-motivator. Once the objectives and KPI’s (Key Performance Indicators) are set, do not change them or raise the bar mid-stream. That is most definitely another de-motivator.

Once it does come time for the final review and determination of an employee’s receipt of the end-of-year bonus, be fair and have an eye toward the awarding of it. The immediate reaction and subsequent behavior and performance would show that this is truly the way to go for motivating your staff.

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That’s the Point!

– Tony

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