Year-end bonuses: Budgeting begins now
The end of the year is right around the corner, and while you may already be planning your company holiday party, you should also be thinking about your employees’ year-end bonuses. Many employees expect a bigger reward this year, but not all organizations can afford to offer additional or larger-than-average end-of-year bonuses. If this is a familiar scenario, use the tools below to find the best solution for your organization.
Start budgeting for bonuses
When it comes to giving your employees bonuses, the first thing you may think of — and likely the first thing your employees think of — is cold, hard cash. Planning and budgeting are critical before opening up your checkbook if you decide to take the traditional route of providing a year-end bonus for your employees.
This year, salary trends for pay increases are hovering around 4 – 6 percent – with the higher amounts reserved for high performers .
Start by looking at your business’s profitability for the year to ensure that you are accounting for any operational or additional expenses you may have incurred. Assessing your profitability will ensure that you can afford to give your employees a year-end bonus and give you factual, numerical data to back up how much you intend to spend.
Once you understand where your business stands financially, you can start to plan and strategize how you will distribute your extra funds to your team. This process isn’t always as straightforward as it may seem, and hiring a compensation consultant can help you properly budget and develop a plan for distributing year-end perks. At Compensation Works, we use a 9-step approach that guides you through the process — from reviewing your current plan to preparing new materials to present to management.
Determine criteria for distributing bonuses
The next step is deciding what contributing factors will influence the amount. One of the more common ways to determine how much you will additionally compensate your employees at the end of the year is performance. Maybe certain workers have continually hit their goals, been recognized with a professional designation, or received praise from a client. Performance-based bonuses can show appreciation for employees going above and beyond expectations and can continue encouraging this behavior.
There are other reward qualifiers besides performance. If you prefer to keep things simple, you can provide a fixed amount or a reward that is a percentage of an employee’s current salary.
Regardless of what factors you decide to consider when providing employees with additional compensation, it’s crucial to perform a pay equity audit. These reviews ensure you are paying workers fairly, addressing any potential pay gaps, and maintaining transparency among employees. Taking the extra initiative to perform a pay equity audit will show your team your dedication to a fair and equal workplace. This effort can help with increased retention and worker satisfaction.
Need help conducting a pay equity audit? We might know someone who can help.
Consider other bonus options
Although a check might be the more traditional and expected route for bonuses, other ways of additional compensation may be more appropriate for some businesses. This can take on many forms, such as extra vacation days, a company gift, recognition from management, additions to your total rewards package, or more flexibility in the workplace. Non-monetary perks can also help with recruitment and retention. These forms of compensation tend to be more memorable and meaningful than simply throwing money at your employees.
No matter what form of compensation you choose to elect for your year-end, it’s essential to start planning and budgeting now. Creating and communicating your bonus plan to your employees is integral to keeping your team happy and business booming.
Need help creating your end-of-the-year bonus plan? Contact Compensation Works today to see how we can help you and your team!