Does your organization pay discretionary bonuses or “profit sharing” to employees this time of year? Year end payments have many names… bonus, incentive, profit sharing, gain sharing…

The majority of organizations make these annual payouts that typically cost 3-10% of employee pay, but are you getting any “bang for your buck?”

The plans (if you have one) range from the individual to the entire group, and from an entitlement to true pay for performance. Of sometimes managers just pick a number and add it to someone’s paycheck.

The communication ranges from a personal conversation describing the specific performance that earned this bonus, to a team bonus tied to specific profit or operation goals, or a “hey, boss, thanks for the bonus, what was it for?” Perhaps worst of all is “where is MY year end bonus?

When payroll budgets are tight and benefit costs are rising at alarming rates, perhaps your management team should take a look at your year end payments, and ask the following questions:

  1. What are the desired behaviors (performance) that we want to reward (that help us achieve our goals)
  2. Does the payout reward desired behaviors?
  3. Do recipients understand how their payment linked to organization goals? (and what they can do to earn more of this?)
  4. Does it follow our firm’s Three C rules that employee ask:

-Clear— what do I need to do to earn it?

-Control— how do I impact the results that impact the amount?

-(not) Complex— is the plan easy to understand how I earn it?

As much as everyone likes “extra” money during the holidays, perhaps the money you are spending on these could be more effective properly linked to performance or diverted to another part of your total compensation budget.

Image courtesy of David Castillo Dominici at