Let’s talk about holiday bonuses

We have written much over the years about employee bonuses and incentives. Generally, the bonuses discussed in past years have been performance based and generally directly linked to individual or unit results.

This month we look at holiday bonuses which are quite different from most performance-based bonuses and reward methods. Here are three examples of those differences:

1. They are generally paid or offered to all company employees, although some firms (but not all) exclude sales forces, managers or executives who regularly participate in other variable pay arrangements. Hence, lower-level employees are the most common recipients of a holiday bonus.
2. They are universally quite small in size. It can be denominated in weeks of salary (often 1 or 2 is common) or in multiples of $100 bills. In any event, the larger the job, the larger the amount of bonus paid. The simplest method is to use salary multiples as the payout “yardstick.”
3. The holiday bonus is generally designed and meant to simply reward the recipient for providing a year of loyal service. It can also be related to company overall performance, but that must be done carefully to avoid both confusion and creating unfulfilled employee expectations.

Why do it? Believers in the holiday bonus say that it can be a unique opportunity for top management to communicate positively with employees whom they do not normally speak with or “touch,” and demonstrate an appreciation for their contribution. At its best, the bonus can be a team binder and “thank you” all wrapped up in a single act of company generosity.  

But not every company thinks holiday bonuses are such a good idea. Some question whether they are getting anything for adding another5-10% to the annual payroll expense with a holiday bonus. Why not just add the extra amount to salary and deliver it throughout the year? Or just save the money and not pay a holiday bonus at all.

Others fear that regularly paying employees (say) a week’s pay at year end will be viewed as a benefit by employees, and a lack of future year-end payments (for any reason) will be viewed as a loss of benefits.

Are you unsure about using holiday bonuses? Based upon our experience, let me suggest  some practices that are often present in successful holiday bonus plans:

• Keep it simple by including every employee in the holiday bonus, with the exception of company executives or select top managers.
• Pay holiday bonuses in multiples of a week’s salary. And in any given year, every eligible employee receives the same salary multiple—manager or clerk.
• Plan to vary the payout each year as a multiple of salary from zero to 2 weeks. Bonuses should be determined based upon some simple measure of company success. Then communicate to your employees why the decision was made. Leadership should deliver the news, either good or bad.
• Again, demand simplicity in standards of performance and success—for example, growth of 5% in revenue next year or some other unambiguous measure everyone will understand. And if sales growth achieved during the year is actually between 4-6%, one week’s pay is earned as a holiday bonus.  Larger or smaller bonuses naturally follow.

And, do not forget to tell your employees how they are doing against that single (all-important) company goal every three months. You do not want to build any employee holiday-bonus expectations that will not be fulfilled—a week before Christmas.

We recognize that the above is more complex than just giving everybody a week’s pay, or a frozen turkey for that matter. But we feel that it will mean more to employees when they have been acknowledged to be part of the team that earned it.

And, $500 in cash on December 15th is always more valuable than $500 in matching funds in their 401(k) that they will not be able to touch for another 30 years.

So, are you going to put on that Santa suit this year?

Wilkening & Company has assisted scores of clients in the design & implementation of incentive or bonus plans for all types and levels of employee. If you have questions, or want to play Santa this year, give us a call at (847) 823-5090, bob@wilkeningco.com.

Secrets of Successful Companies—Our Perspective

Many articles and books have been written about the why’s and how’s of successful companies. New references and titles are available almost every month. “Google” the subject and you will see the breadth of both titles and opinion on the subject.

Our objective with this article is not to try to summarize already-published opinions or research. Instead, we will take a different approach. As a consultant, I have worked with nearly 200 client organizations. As the result of these assignments and also my contact with other companies and executives during a four-decade business career, I have found that certain characteristics are most often present in a successful company.

As a result of my observations, I have developed a list of eight characteristics that stand out the most for me. Let me share my brief list with you. See if you agree.

1. Successful companies know exactly where they are going. They have a tendency to look well into the future and broadly communicate company-wide expectations of success. CEO’s and other employees can generally tell you where their road leads in unambiguous terms.
2. Growth is the currency of success. We mean growth in all areas….sales growth, profit growth, market growth, technical growth, personal growth.  Growth goals and expectations are also everywhere (and affect everyone). But with goals, comes a responsibility for establishing expectations that employees, units and the company can achieve. Unachievable expectations are corrosive and deflate the growth bias (and morale) pretty quickly.
3. There is a company-wide culture of both fairness and respect. It is fully understood that if employees feel that they are both treated fairly and with respect by the company and by other employees, they will like coming to work and be committed to organizational (team) success. And, the result will be measured in growth. Such fairness and respect is institutionalized in company process and policy, and examples are set daily by the executive team. It is the culture.
4. Responsibility is pervasive. Employees know what is expected of them and most will do what they can to meet and exceed those expectations. They will do it for the team. Further, this cultural foundation also will establish high levels of company quality—in all matters. Every employee should (will) have the opportunity to exercise the highest level of responsibility they can muster.
5. Employees are paid (and know they are being paid) based primarily upon contribution and performance. Most pay processes are as objective as possible regarding results, outcomes and value. It does not really matter what type of pay system you use or whether we are speaking of salary, bonus or profit sharing. There are few entitlements or exceptions within such a pay-for-performance culture.
   In such an organization, you can generally draw a two-axis chart with increasing performance or contribution (however measured) in the horizontal axis and pay on the vertical axis for all like employees—top to bottom. You should see a pretty straight line from bottom left to top right. If this in not so in your organization, then ask what you are really paying for?
   
6. The customer always comes first. This is a simple and oft-repeated statement, but successful companies give it life. From the CEO down, every employee knows that the reason they have a job is because of the requirements and needs of their customers. And further, that customer makes decisions every day to affect the on-going relationship with the company—and ultimately to affect the employees' livelihood. Employees are never encouraged to believe they work in some sort of market-sheltered isolation.
   When considering the primacy of the customer, employees also understand the value proposition (quid pro quo) that exists between company and customer. For example while service and quality are absolute requirements, not all customer requests or demands are sensible to either party. Take customer-requested pricing concessions as an example. Smart companies will realize that serially cutting their profit contribution through price concessions will initially risk service quality and ultimately put company jobs at risk. Can’t cut prices to success, can you?
7. The CEO’s office door is a two-way street. The CEO will generally talk to any employee regarding just about any subject. This is an absolute requirement for a company with a culture of fairness and respect. On the other hand, in a successful company it may be hard to find the CEO in their office very much as they will be spending as much time as they can "in the field" with employees at all levels—listening and adding their voice to the dialogue.
8. Little should get in the way for employees and decision makers doing their jobs. In other words, if you are a sales person you spend most of your time with customers selling, if you are a customer service rep you spend most of your time servicing customer needs and speaking with customers, and if you are an executive you spend most of your time pursuing company strategy, growth opportunities and interacting with customers. Clearly anything that gets in the way of “doing your job” should be identified, evaluated for value added, reassigned or ceased.

Must a company exhibit every one of the eight characteristics noted above to be a success? No, but we have found that successful companies will do some or many of the things that we have outlined above to some degree. The best do more and get the “mix” right.
What should a reader do with this list? I suggest you consider three steps.

• First ask yourself if your company currently is successful. Of course, the primary standard you should use is financial success. But, also what about the quality of your products and services to the customer or the attitudes & morale of employees? It is unlikely you would have financial success without the latter two factors. Do you have ways to measure service, quality and morale? If not, there are straight forward ways to do so.
• Then (or in parallel with the above), assess whether your company exhibits some or all of the above eight success characteristics. It should not be that hard. I assume that a simple “Yes” or “No” will come easily.
• Finally, where you find that the answer is “No” to some or many success characteristics, assign a senior company executive the task of creating a one-year plan to turn them all to “Yes.” There may be much to do, but it can certainly return dividends. And if it actually takes two years, who cares? You win!

Sit back today and consider the above eight characteristics in the context of your company. Do you think you have (and do) what it takes to be successful?
If not, make it your priority for 2014.

If you have questions regarding our selected success characteristics or would like to add one or two of your own, call or write at (847) 823-5090 or at bob@wilkeningco.com. We will also share any reader input on this important subject in our November edition of E-Notes. Thanks for visiting with us.