When Year-End Bonuses Don’t Materialize

How to break the news that employees won’t get their annual increase despite hard work

By Dana Wilkie Jan 27, 2015
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Year-end bonuses, especially when tied to workers’ performance, are typically a way for employers to encourage hard work, innovation and loyalty—all of which contribute to a company’s bottom line.

But what happens when that bonus doesn’t materialize, maybe because an organization took a sudden financial hit or because profits didn’t come in as expected?

Breaking the news to employees that they won’t be getting bonuses—especially after they have toiled over setting goals and meeting quotas in anticipation of being rewarded for their efforts—is never an easy thing to do.

Simply Hired, an employment website, noted that for 2015, 6.6 percent of white-collar industries are expected to specifically mention bonuses in their job descriptions—up from 5.9 percent in 2014.

On the high end is the health care industry: 13 percent of health care companies are expected to tell prospective employees that they offer bonuses—up from 12 percent in 2014.

"Health care is an industry that has been recruiting and hiring heavily over the past several years,” said Susan Martindill, Simply Hired’s director of marketing. “Jobs for nurses saw 7.5 percent growth in the month of December [2014] alone. Health care companies are likely using proactive mention of bonuses in their job descriptions as a way to attract candidates.

”On the low end are the arts, design, entertainment, sports and media industries, where 2.4 percent of organizations will likely mention bonuses.

“This doesn't mean that those [lower-end] jobs don't offer bonuses, just that they don't explicitly say so in the job description,” Martindill said. Yet, for jobs where bonuses are advertised, there is a risk: “With employer brand being top of mind for many employers today, companies should be careful about the perception involved in using bonuses to lure in candidates but then not providing those bonuses.”

Most employers qualify their policies by stating that bonuses are discretionary, meaning they cannot be guaranteed and that the health of the business may dictate the amount of bonuses. In the event where no bonus can be given, how news affects employee morale depends in part on individual workers’ attitudes and in part on how the company delivers the disappointing announcement.

For starters, it’s important to deliver that news as soon as possible, said Tim Low, vice president of marketing at PayScale Inc., an online salary, compensation and benefits information service.

“More and more, employees want transparency from the leaders in their company,” he said. “This trend is part of the wave of Millennials in the workforce who are more comfortable sharing the specifics of their compensation package. Bonuses are no different. If a company is not paying bonuses, managers should communicate the news to employees as early and as broadly as possible so they can maximize their credibility with employees. People understand there are economic realities to running a company which might impact bonuses, so an open and honest approach is always best.”

If senior leaders are guaranteed bonuses by contract, they should consider forgoing them to maintain their credibility, and to show solidarity with lower-level workers who won’t be getting them.

Companies may also want to consider delivering bonuses regardless of company profits, wrote Art Jacoby, a Baltimore, Md.-based small business expert who owns Jacoby Growing Companies, on his website.

“A small amount of economic thoughtfulness when the chips are down will build extra loyalty and be remembered and appreciated for years,” he wrote. “Anybody can be thoughtful when things are going well. It takes a special leader to be thoughtful even when it’s tough to be.”

If a company’s cash flow is insufficient to cover bonuses, alternatively think about giving turkeys or holiday baskets filled with holiday treats, grocery store or gas cards, gift certificates to a favorite local restaurant, or paid time off.

Long before delivering any news about bonuses, however, companies should be working continually to remind employees of their total compensation.

First, ensure that base pay is commensurate with market salaries, Low said, “to ensure employees feel they are getting a good deal on an ongoing basis.”

"Employers should take a hard look at their compensation program and ensure they are paying employees the right salary to compete in the volatile talent market,” he said. “Cutting costs when it comes to compensation is never a good strategy. Companies pay much more in the long run when they have turnover of good employees who go looking for a better deal because they don't feel they are compensated fairly.”

Companies should consider providing employees with a personalized compensation summary at some point during the year “because employees rarely get a view of their entire compensation package,” Low added. This summary could outline all aspects of an employee's compensation—base pay, benefits, retirement package, vacation, medical pay and training allotments.

If appropriate, companies should also articulate their plan to improve company performance for the following year to improve the chances that employee bonuses can be reinstated and to let workers know what they themselves can do to improve their odds for a future bonus.

Dana Wilkie is an online editor/manager for SHRM. 

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