Year-end bonus as much incentive as gift

Lucky employees at thousands of small businesses will be getting cash from company owners as the year wraps up. Some companies will call the money a year-end bonus and others will label it a holiday gift.

Which is which? It depends more on the purpose of the money than what the dictionary says. But although both are given to show appreciation to employees, what many people usually think of as a bonus is used as an incentive and it’s often tied to a company’s performance.

Sandy Hermanoff, like many other small-business owners, gives year-end bonuses based on how well her public relations firm has done during the year as well as on how well the individual employee has performed.

“Those who have performed well will probably get a higher bonus,” said Hermanoff, chief executive of Hermanoff & Associates in Farmington Hills, Mich.

Hermanoff said she would see what her company’s cash position was like at the end of the year, decide how big the bonus pool would be and then divide it among her eight employees according to performance and their tenure with the firm.

She said that she had also given gifts to employees, such as hams or turkeys, but that the bonus wasn’t intended as a gift to mark the holiday season.

In many cases, bonuses can easily amount to four figures, depending on how well a company has done and how generous an employer is. Holiday gifts are more likely to be a little more modest -- often below $500.

Many employers and human resources professionals advocate letting employees know early in the year that they stand to earn a bonus if the company does well. That’s where the incentive component comes in.

But planning for bonuses early in the year is also a good idea because that enables an owner to set money aside.

If you start trying in December to figure out how much of a payout you can afford, chances are it’s going to be smaller rather than larger, unless your company enjoys a late-year revenue windfall. Many owners who hope to pay bonuses budget for them in January.

If you’re not sure what kind of formula to use in computing a bonus amount, a human resources consultant can guide you. Or you might ask owners of similar businesses to see if there’s an industry standard you should consider. Remember, bonuses can be a good recruiting tool, and they also can help you retain good staffers.

Some factors to consider include employees’ contributions to the business, attitude and performance and length of time at the company. Some owners might decide to just give a flat rate to everyone -- that does greatly simplify the process, but it also removes some of the bonuses’ value as incentives to do good work.

Timing is another consideration: Many companies eschew the idea of the traditional year-end bonus, choosing instead to reward employees twice a year, quarterly or even monthly.

At VendorSeek.com, a business-to-business website based in Mount Laurel, N.J., President Ken Wisnefski gives his 31 employees bonuses each month.

“It gives everyone the mind-set to watch the bottom line, and it’s a factor in promoting the team environment as opposed to the individual,” Wisnefski said. “There’s a lot more [effort] directed at the month at hand.”

Wisnefski saw the usefulness of the monthly bonus in September, when business slowed and the bonuses were smaller.

“It seemed to energize a lot of the company,” he said.

VendorSeek.com will also give out a year-end bonus, but Wisnefski says it won’t be the large reward typical of other companies because bonus money has been paid out all year long.

At other companies, he noted, “people end up waiting around all year for a bonus and it becomes a larger-than-life situation.” At VendorSeek.com, he said, “there’s more of that instant gratification.”