DECEMBER 07, 2016If you have plans to reward your employees with holiday bonuses this year, you won’t be alone. According to the American Express Holiday Growth Pulse¹, a survey of 1,502 small- and middle-market business owners across a variety of industries, 80 percent of small businesses and 87 percent of middle market companies plan to give employees bonuses this year.

“As businesses across a variety of industries anticipate a successful holiday season, the time is ripe to offer holiday bonuses to employees, when possible,” says Nicole Smartt, vice president of Star Staffing

and author of From Receptionist to Boss. “Bonuses are a tangible way to show appreciation for the hard work done all year.”On the surface, holiday bonuses seem like an ideal way to say thank you and inspire dedication in your employees. But are bonuses the best motivator? Considering the benefits and drawbacks may help you decide if bonuses are right for your company.

The Benefits of Holiday Bonuses

“Holiday bonuses are a tangible way to show care and concern for employees and their families,” says Shannon Esau, director of accounts and education for Rhonda Allison Cosmeceuticals

. The company uses a performance-based reward system that results in bonuses. “We strongly feel that holiday bonuses are an important part of our culture as a company, as a reward and celebration for all of the committed and dedicated work over the year.”

Year-end bonuses can bring definite benefits, agrees business coach Becky A Davis

. “Holiday bonuses are a great way to share how much you value your employees and their contributions to the company metrics,” Davis says. “Bonuses give you a means to help the team to hit company targets and increase morale. When you’ve worked hard and [met] goals, it feels great to be rewarded.”Holiday bonuses can also come at an ideal time of year when employees have giving at the top of their minds, adds Colin Duetta, CEO and co-founder of xocial

, an online community that connects people and organizations with causes they care about and gives them a platform for taking action. “Recognition is a great way to keep employees engaged, and recognition that comes from the top is the most memorable.”

The Drawbacks of Holiday Bonuses

But offering bonuses to employees can have drawbacks as well. One of the biggest ones is cost. Even if you are doling out modest bonuses, they can add up quickly. Jealousy and resentment can also sprout up between employees if the bonus amounts vary.

“Bonuses can also create expectations of future holiday bonuses, which may or may not be possible in coming years based on the revenue [and] income of the company,” says Jill Schiaparelli, CEO of InteloMed

, which offers medicial professionals real-time analytics on patients. “That can be especially challenging for businesses.”Expectations regarding bonuses can be one of the biggest drawbacks to offering them, agrees Phil Shawe, co-CEO and founder of TransPerfect

, a language translation service provider. “Once a bonus becomes expected, it ceases to become a motivator, and may become viewed as an entitlement.”Daniel Rieger, co-founder and managing partner of At Your Service Hospitality Group

, agrees. “Employees can come to expect bonuses simply for being employed. This creates a lot of animosity from co-workers of employees who don’t deserve to get paid the amount of the holiday bonus they are expecting.”Giving bonuses without backing them up with performance can create lazy, entitled employees, shares Davis. She believes in giving bonuses based on performance, commitment and results.

“I had a client who gave bonuses every year, even when the company had a bad year,” she shares. “When the company decided to change tactics and give bonuses based on performance and commitment, all of the employees were upset and angry, because they were used to getting free money, even if it hurt the company’s bottom line.”

How Much of a Bonus Should You Give?

While there is no exact science to determining how much to give for bonuses, there are some rules of thumb.

Smartt of Star Staffing suggests examining company revenue from the first 10 months of the year. “If it’s been a good year, offer what you can, without breaking the bank,” she says. “Some businesses give a flat dollar amount to each employee, which varies by industry and profitability, with amounts ranging from $50 to $5,000; the median being $300. Use generosity in moderation, though. Being too generous in a good year can make for an embarrassing downgrade later.”

And Esau of Rhonda Allison Cosmeceuticals recommends only giving bonuses to employees who have been with the company for six months or more. She also advises giving an equivalent of about 10 percent of annual income.

When No Bonus Is Best

When your company has a slow year, you may want to consider foregoing holiday bonuses.

“If the company isn’t hitting its numbers, it doesn’t make much sense to reward people for poor results, and everyone should feel responsible,” says Matthew Bird, CEO of on-demand media and news communications company 1800pr

. “Sometimes money isn’t the best kind of bonus, anyway. Constructive feedback and encouragement is sometimes the greatest gift you can give employees.”If you can’t afford a bonus of substance, Smartt suggests not giving one at all. “A cheap gift can send the message that employees aren’t valued,” she explains. “If your company is forced to offer no bonuses due to a bad year, be sure to communicate that fact to employees and assure them bonuses will be offered when and if possible. Non-cash gifts or other perks during the holidays can be a good alternative when cash gifts aren’t feasible. They might include extra time off or flexible hours.”

When you aren’t able to give bonuses after you’ve been doing so in the past, you may get some backlash, Davis adds. “Expect employees to be upset with you and talk negatively about it in the break room. Some employees will focus on the good, but not all.”

If financial rewards don’t fit your current situation, then come up with a holiday recognition program that does, suggests Duetta of xocial.

“Get creative,” he says. “If something feels like it took some thought, it will have greater impact than simply receiving an impersonal check or—even worse—an automatic bank deposit. In lieu of a monetary bonus, an organization with a strong corporate social responsibility program could give employees paid opportunities to volunteer or run a social campaign over the holiday season.”

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Photo: iStock

¹ Survey Methodology
The American Express Holiday Growth Pulse is based on a nationally representative sample of 1,000 U.S. small business owners/managers, defined for the purposes of this survey as companies with fewer than 100 employees and annual revenues of $250,000 or greater, and 502 middle market companies, defined for the purposes of this survey as companies ranging in size from $10 million to $1 billion in annual revenues. The anonymous survey was conducted online among financial decision makers, owners and managers October 4-16, 2016. The survey has a margin of error of +/- 3.1% at the 95% level of confidence for the small business sample of 1000 and a margin of error of +/- 4.4% at the 95% level of confidence for the sample of 502 middle market companies. Sub-samples of small business and middle market retailers have higher error rates.