Tis the Season to Refine Gift and Bonus Policies

The end of the year is a time for celebration. But it can also be a time when questions arise in the workplace about the appropriateness of gifts from vendors and clients. And employees might be expecting an end-of-the-year bonus. This is a good opportunity for HR managers to review both gift policies and best practices for awarding year-end bonuses.

Clearly articulated policies can help avoid some uncomfortable situations. One company established a gift policy after a client dropped off four Taylor Swift concert tickets only to have the receptionist, who received the envelope, use the tickets without telling anyone. "The tickets were valued around $4,000 total, and it caused a lot of friction," said Christy Hopkins, an HR consultant at Fit Small Business in New York City. To avoid this sort of situation, she suggested having a policy that requires employees to declare all gifts received from outside the company. This way, management "can use them as performance rewards" when appropriate or not allow them to be accepted if receipt of a gift is deemed inappropriate.

What to Allow

Employers need to be very clear on what kinds of gifts from parties outside the organization are and are not allowed. Accepting gifts from vendors, customers and other outside parties can create the appearance of a conflict of interest. When establishing or updating holiday gift policies, be explicit on whether any gift-giving or gift-receiving at all is allowed. Depending on the industry, many employers simply bar any outside holiday gifts altogether. In these cases, employers should set a clearly articulated no-gift policy and communicate it to employees as well as vendors and other outside parties.

Many companies limit or forbid outside gifts to employees because they could be seen as attempts to influence employee behavior, including purchasing decisions involving the vendors that are giving the gifts.

"Developing a policy on this would simply explain the possible consequences of influence and why the policy is being put in place," said Sandy Newsom, CFO of BirdDogHR, a talent management software company based in Des Moines, Iowa.

[SHRM members-only HR Q&A: Are there any tax issues we need to be aware of when we give employees a gift card or other small gift?]

Newsom emphasized that a gift policy must be consistent with any other existing ethics programs. After all, the point of such a policy is to encourage "high standards of honesty and integrity in decision-making and behavior," she said. It is also important, she noted, to:

• Communicate your gift policy to employees and others you do business with.
  
  
• Encourage employees to consider the ethical implications before giving and receiving gifts.
  
  
• Offer additional support for those who are from cultures with different gift-giving norms.
  

There can be legal reasons for gift bans, which should also be clearly explained to employees. "The risk of receiving pricey gifts is that the employer could run afoul of conflict-of-interest and anti-bribery regulations," said James Celentano, managing director at EnterGain LLC, a business and talent advisory firm based in Martinsville, N.J. "Even if they stop short of breaking the rules, there is the reputational risk of appearing to receive gifts in exchange for discounts or other special arrangements. Public-sector employers need to be especially aware of federal and state conflicts-of-interest laws and policies that apply to their organizations."

Companies that allow employees to receive gifts from vendors should set appropriate parameters. The most popular approach involves the establishment of a maximum-dollar value, said Susan Hosage, SHRM-SCP, an HR consultant based in Scranton, Pa. For instance, she noted, policies can make a distinction between gifts that are considered de minimis, such as those valued at under $20, and gifts of greater value, which would need to be reported to executive management.

The same logic would apply to gifts from customers who might otherwise expect to receive special treatment in return, said Newsom. "There can be either zero-tolerance policies or a requirement that customer gifts must be under a $10 threshold," she said.

Because some gifts may be offered to the company generally instead of to a specific person, there should also be a policy on how the company will handle these kinds ofgifts. "Many companies share holiday vendor gifts with all employees or donate business gifts (food, candy, baskets, etc.) to charitable organizations in the local area," Hosage said.

The Year-End Bonus Question

Year-end holidays are a popular time for employers to award bonuses and other gifts to thank employees for their work throughout the year. These holiday rewards are discretionary and should be kept distinct from variable compensation that's earned through a formal performance-based incentive-pay program, although both may be referred to as "bonuses."

Employers that lack a variable-pay program, in particular, may use discretionary holiday bonuses to reward employees for the organization's performance. In that case, employers should clearly communicate that it is the company's choice to give these rewards, lest employees believe the bonus will be coming every year.

There are two schools of thought on how to avoid year-end bonuses becoming expected as part of the compensation package. Some companies follow a simple policy of giving everyone the same amount, either as a flat-dollar payment or equal to a certain multiple such as one week's salary that varies by company performance or other metrics (again, similar in some respects to a formal variable-pay program). If the year-end bonus, although discretionary, is being tied to organizational performance, "The employee should be part of the discussion about the metrics, how they are chosen and how they are measured, so they feel it is achievable yet something to work toward," said Newsom.

When the size of holiday bonuses is based on either employees' positions within the company or their perceived value, "There will always be employees who are thrilled to receive them and others who will be dissatisfied with the amount," said Hosage. To make these gifts more meaningful, she urged managers to communicate about the gift personally with each employee and to express appreciation for the employee's efforts. "That is what adds sustained meaning to the gift," she said.

Related SHRM Articles:

Holiday Bonus Forecast Anticipates Fuller Employee Stockings, SHRM Online, October 2016

Premium Pay for Working Holidays Is Popular; Allowing ‘Swapped’ Holidays Is Not, SHRM Online, October 2016

Are Holiday Gifts, Prizes or Parties Taxable Wages?, SHRM Online, November 2016