Landscape Management, December 2015

business insider Solve year end bonus problems T he year end bonus is a staple at many companies Unfortunately whats meant to be a positive thing often turns into a negative experience Year end bonuses are typically meant to reward people for their efforts and provide motivation going forward Instead unmet expectations and an attitude of entitlement often result in disappointment hurt feelings and even employee turnover not exactly the intended outcomes The problem is the typical year end bonus fails to adhere to tried and true best practices for incentive compensation In fact the problem starts when the year end bonus is not viewed as incentive compensation but as a generous gift from a caring owner or management team Bonuses are incentive compensation Period All incentive compensation should be tied to results and performance not random acts of kindness If the company does well bonuses increase and vice versa If individual performance is good bonus amounts are higher and vice versa There needs to be a link or bonuses will appear random or even worse distributed with favoritism or a what did you do for me lately mentality When companies correlate year end bonuses with results and performance there should be no surprises since results and performance should be well known throughout the year Even if its discussed only quarterly with a high level update employees deserve to know how the company is doing overall and how theyre doing individually Again there should be no surprises Another consideration is the timing of year end bonuses If distributed just prior to Christmas as many bonuses are theyre even more likely to be expected I highly recommend moving the year end bonus to another time of year Just because the calendar year ends Dec 31 doesnt mean bonuses need to be handed out during this season Theres some wisdom in waiting until after the books are closed and taxes are completed to get a more accurate read on bonus calculations Who gets a bonus Who should be involved in the year end bonus program Many companies choose to involve management only while others include all full time year round staff Others include all personnel Tied to this decision is the question of how much is too little before its demotivating or even insulting For example a yearend bonus of 500 may be motivational to a lower level person in the company but 2850 may be more of an insult Its important to run through some scenarios to see how the math plays out when attempting to make this decision about who to include and who not to include The amount and allocation of the year end bonus pool are additional considerations Some level of proftability should determine the bonus pool with approval by the senior management team If the company has met or exceeded its goals the bonus pool may be flled according to a predetermined formula However by Phil harwood if the company has not met its goals bonuses should be a moot point Regarding allocation managers deserve a bigger share of the pool on a pro rata basis than those they manage An easy way to determine allocations is to use an adjusted weighted average method Using this method allocations are fair and easily justifed if necessary Variances for individual performance may be made quickly and accurately See Web Extra for Excel template Finally year end bonuses are much more powerful if delivered in front of the recipients peers The frst management bonus I ever received was given to me at a large managers meeting in front of my fellow managers While I dont recall the amount of the bonus I will never forget the sense of pride and accomplishment I felt walking up to collect the sealed envelope and shake the hand of senior managers who were present Talk about a powerful impact As the year comes to a close now is a good time to reconsider and make improvements to your yearend bonus program Best wishes for a wonderful Christmas season and a successful 2016 LANDSCAPEMANAGEMENT NET December 2015 68 The author is president and CEO of Pro Motion Consulting Reach him at phil@ mypmcteam com business basics Planning PhOTO isTOCk COM DNY59 WEB EXTRA Visit the Web Extras section at LandscapeManagement net for Harwoods bonus program Excel template