End of Financial Year Bonuses: To Pay or not to Pay?

As we approach the end of the financial year, many businesses will be paying their employees a bonus for their hard work and dedication whilst in other businesses, no bonuses will be paid at all.

So, the question here is, as SME owners, should you pay your employees an end of year bonus or not? Simon and Nuhman go head to head in a fierce and one-time only debate into the pros and cons.

So over to Simon with the pros…  

Of course, you should give end of financial year bonuses and here’s why:

1. Many employees could benefit from a financial leg up at this time of year particularly after what may have been an expensive festive period. There is also the prospect of paying for this year’s summer holiday to bear in mind. Holidays aren’t cheap you know!

2. With a bonus, your employees will have a clearer picture of what is needed to ensure the business succeeds. It’s no good having a great reputation for being a friendly business with great customer service if you don’t make a profit! Incentivise the profit and the customer service and friendliness will take care of themselves.

3. Bonuses can reward individuals or teams. You might think that individual bonuses can be divisive, so why not reward your loyal and the hard-working employees on a team-basis for their commitment to the cause. If division is your concern, spread the bonus throughout the team and see how the real stars of the organisation are revered by their colleagues.

4. They might buy you a pint, give you a big hug or say I owe you one, but nothing expresses gratitude for a good job well done as much as hard cash! When effective, such payments lead to temporary positive feelings about the business from employees. Ideally, this helps generate long-term loyalty for the organisation because the bonuses are just one positive measure to create a happy workplace.

5. Pressure creates diamonds! Yes staff may have mentally spent their bonus before they’ve received them, but provided the organisation is consistently open and honest about performance levels and required targets, there shouldn’t be a problem. Staff should know what is realistically achievable within the time frames required to hit their bonus. Also, should they fall short, they can use this as a chance to reflect on what they could do to ensure they hit their targets in the future.

Here’s Nuhman with the cons…

1. Bonuses can have a negative impact upon employees, as they can make people behave in ways they wouldn’t normally, just to get that bonus! For example, the thought of a little extra cash could lead to unethical business practices such as the miss-selling of products or even putting undue pressure on customers to make purchases. It’s important to think about the impact of this behaviour; customer complaints, reputational damage, loss of revenue – it’s a slippery slope.

2. Research indicates that the possibility of a hefty bonus is not at the forefront of the minds of prospective job seekers. Potential employees often value a higher a salary as well as a comprehensive benefits package, so why not invest in these areas instead?

3. Linked to my first concern, the possibility of an end of year bonus can bring out the worst in people. Think about it, when employees are all vying for that bonus, the rivalry can become nasty, leading to employees working less collaboratively.

4. Bonuses can lead to feelings of resentment from those employees who struggle to achieve a bonus for those who obtain one easily each year. This could then lead to those employees becoming disillusioned with the company and the next thing you know is you have a pile of resignation letters on your desk!

5. Awarding bonuses each year can lead to your employees developing unrealistic expectations. It’s all well and good when business is booming and you’ve had a great year but what happens if the following year has been a damp squib and you’ve barely kept afloat? What will you pay your employees then?

Conclusions…

So after a vigorous debate, here are some things to think about before you write that cheque…

1. Try to be innovative when it comes to rewarding your employees. You don’t have to stick to the traditional one time only bonus model. Why not look at regularly rewarding employees, and this doesn’t have to be with cash. What about a nice gift or a few days extra paid holiday?

2. Crucially, it’s a great idea to monitor the scheme(s) you have in place with employee surveys. You also need to keep your budget in mind and avoid the sticky situation of over-promising and then failing to deliver.

3. Finally, regularly review how you award bonuses. Are your targets fair and achievable? Could you measure other parameters and how could the latest technology play a role in measuring employee performance?