The Business of Bonuses: How Great Companies Manage Bonuses During Tough Times

Apr 21, 2021

Bonuses can be a tricky topic to navigate, and there is no one "right" way to handle them, especially during a time of crisis. 2020 came with plenty of challenges, including enough loss of revenue that many companies were not able to offer bonuses as anticipated. But great companies have some things in common when it comes to employee bonuses, even during difficult times. Here is a look at some bonuses basics, including how they are set up, why they are important, and what to do if they cannot be paid out.

Description of Different Types of Bonuses

Bonuses vary as widely as the companies that offer them, but there are a few common types that occur most frequently in the construction industry. Most bonuses are tied to performance - employees who meet or exceed certain metrics are often rewarded with cash incentives. These are usually referred to as performance- or project-based bonuses, and whether (and how often) they are paid out depends on the performance of the employee and the company overall. Some bonuses, called guaranteed bonuses, are not tied to performance; they are built into an employee's compensation structure and are paid out whether the employee and company meet their performance goals or not. These guaranteed bonuses can be a strong incentive to bring top talent on board, and they are also commonly offered in sales roles to give employees a financial boost during a long sales cycle.

Some companies split the difference between performance-based and guaranteed bonuses, such as by offering a "performance-based bonus of at least 10%." This gives employees a baseline for what to expect when they meet their targets, while also giving managers the freedom to increase the bonuses accordingly for above-and-beyond performances. Finally, there is the "WOTO" bonus - the "Whim of the Owner" bonus. The size and frequency of distribution of these bonuses are tied not to performance metrics, but to how generous a company's owner is feeling that year. These are most commonly given out during the holidays at the end of the year, but as with other types of bonuses, they can be flexible in their delivery.

Reasons Bonuses Are Important

There are two major reasons that bonuses are important for companies to deliver on. First, companies need to make their employees feel special. Employees are the heartbeat of any company, and making sure they feel valued and respected is critical for retaining key talent. While there are many ways to celebrate employees, cash bonuses are a straightforward and highly effective reward system for high performers. The second reason is perhaps even more important: companies must always keep their promises to employees, and never go back on their word. If bonuses are a part of an employee's compensation package as discussed at the start of their tenure, it is critical that companies do everything in their power to deliver on those bonuses, no matter which kind they selected.

In an attempt to cut costs and bolster their bottom lines during challenging economic times, some companies start by reducing or cutting out bonuses. But taking those steps too soon can have an unintended consequence: employees might interpret that as a broken promise by the company. The result could be an uptick in employee turnover, which can cost companies significantly more than a bonus payout would have. Even during difficult markets, if business is relatively steady and employees are performing well, managers should consider other cost-cutting measures before eliminating or changing bonus structures.

Other Ways to Reward Employees in Times of Hardship

For some companies, market downturns or other circumstances out of their control make it so that giving bonuses simply isn't feasible. Some hardships are unavoidable, and even though companies value their employees and want to do the right thing by them, sometimes they simply won't have the capital to dole out generous bonuses. In those cases, it's especially important that companies find other ways to show their employees how valued and appreciated they are. Transparency is key - be honest about why bonuses are simply not an option at that time, especially if they are traditionally part of employees' annual compensation. Managers should take the time to speak directly with each employee - in person or over the phone, not through an impersonal email. Tell them how much the company appreciates their hard work and find small ways to reward them that fit within the company's budget. Fortunately, there are many ways to show appreciation for employees that won't break the budget. Some examples include hosting a catered lunch to gather employees together and celebrate their achievements, sending out thank-you cards, or delivering small gifts.

Great companies face challenges like every other business, and they have different ways of handling those challenges while delivering on their promises to employees. The simplest rule of thumb for how to navigate bonuses during difficult times is this: do the right thing. Whether that means digging deep and finding the capital to deliver on bonuses as promised, or communicating honestly with employees about why that can't happen and finding other ways to reward them for their hard work, great companies will always find a way to do the right thing for their employees.

About the Author

Todd Chandler

Todd joined Kimmel & Associates in 2007 as a Recruiter. In 2010, he was named Recruiting Manager. Prior to joining Kimmel & Associates, Todd was President of Town & Country Motors, which gave him a first-hand understanding of the value of people when it comes to ensuring company growth.

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