Year-end bonus

From CEOpedia | Management online

Year-end bonus (called also Christmas bonus) is a reward paid to employees in second half of December. Such a bonus is usually associated with performance of employee, department, division or whole company. Year-end bonus is a form of incentive for individual person to recognize his/her achievements.

Rules and criteria

Company can define rules and criteria of year-end bonus. Usually they are based on:

  • overall sales profit,
  • meeting goals,
  • finishing project,
  • achieving milestone.


The sum of year-end bonus also stems from position in the company. Managers obtain higher bonus, and rest of employees somewhat smaller. In some cases non-cash bonuses are given.

If the company doesn't achieve criteria that have been defined, the year-end bonus may be withhold.

Amount

There is no need to pay employee big amount of year-end bonus or give every other kind of compensations. Article claimed that "even a small amount of bonuses could improve performances on incentivized measures"(S. Chung 2010, p. 554).

In general, the amount of year-end bonus is different depending on the kind of work. Base salary is different for employee who work full-time and different for employee who work on part-time. Additional base salary is depending on the years worked. In article Briscoe mentioned that "bonus is assigned according to individual performance". Bonus are calculated as a percentage of their full-time or part-time salary (F. Briscoe 2011, p. 11-12).

Creating bonuses

It is sure that all bonuses need to be create for individual person. It could be the best way to increase effect and individual performance.The best way is to checking achievements with each employee individually (S. Chung i in. 2010, p. 554).

Sometimes company at the beginning of the year conducts conversations with all employees. They talk about goals for new year, certified trainings or improving their work. At the end of the year they have another conversations and they determine progress at their goals. Base on that, company pay year-end bonuses.

Research

In Chung's article they carried out research on a group of doctors in difference of frequency their compensation. These bonuses could be paid once a year = year-end bonus or could be paid four times a year. In conclusion they claimed: "no differential improvement in overall quality measure scores based on the frequency of payment". There is no difference in employee quality or satisfaction of work. Additionally there is no distinction in amount of this compensations. Average bonuses are very similar when employer paid to employee four time a year or once a year (S. Chung i in. 2010, p. 561).

The important thing is what wrote Pouliakas. He mentioned that if employee adapt to year-end bonuses or another kind of bonuses and they lose it they can lose their job satisfaction and willingness to work. He write: "the fall in motivation once a reward is revoked will be larger than the original gain in satisfaction following the introduction of an incentive bonus". Firms need to be careful. It is better to pay small amount of year-end bonus or give small compensations than give one big bonus but for only once (K. Pouliakas 2010, p. 616).

Examples of Year-end bonus

  • Cash Bonus: This is the most common type of year-end bonus. This can be a predetermined amount, or it can be based on an employee’s performance.
  • Stock Options: Some companies offer employees the option to purchase company stock at a discounted rate. This can be a great way to reward employees for their hard work and help them build long-term wealth.
  • Paid Vacation: Some companies offer employees paid vacation days as a year-end bonus. This can be in addition to their allotted vacation days or a free trip to a destination of the employee’s choice.
  • Gift Cards: Gift cards are a great way to reward employees for their hard work. Companies can give gift cards to stores or restaurants that are popular with employees.
  • Product Discounts: Companies can offer employees discounts on their products or services as a year-end bonus. This is a great way to reward employees and encourage them to use the company’s products or services.
  • Charitable Donations: Companies can make donations to a charity of the employee’s choice as a year-end bonus. This is a great way to show employees that the company cares about making a positive impact on the world.

Advantages of Year-end bonus

Year-end bonus is a great way to reward and motivate employees. It has following advantages:

  • It incentivizes employees to work hard and stay motivated throughout the year. It encourages them to stay productive and achieve the desired results.
  • It is a great way to reward employees for their loyalty and hard work. It shows appreciation for the employees’ efforts and encourages them to continue working hard.
  • It is a great way to attract and retain employees in the organization. It increases employee morale and loyalty and helps in building a positive work environment.
  • It also helps in improving employee productivity and performance. Employees can be motivated to perform better when they are rewarded for their efforts.
  • It also helps in increasing employee engagement and satisfaction. When employees are rewarded for their efforts, they feel appreciated and engaged.

Limitations of Year-end bonus

Year-end bonus can be a great way to motivate employees and reward their performance, but there are certain limitations to be aware of. *First, year-end bonuses are often seen as a short-term solution to a long-term problem. This can lead to employees feeling undervalued or unappreciated if they are not receiving bonuses on a regular basis. *Second, year-end bonuses can be expensive for companies to implement and may not always be feasible depending on the company's finances. *Third, bonuses can sometimes lead to an unhealthy sense of competition between employees, creating a hostile work environment and decreasing morale. *Finally, the timing of year-end bonuses can be a challenge, as companies need to decide when the best time to distribute them is.

Other approaches related to Year-end bonus

A Year-end bonus can be implemented in various ways, such as:

  • Bonuses based on individual performance - this approach is based on rewarding employees for their specific achievements, such as meeting certain targets or completing a project on time.
  • Bonuses based on team performance - this approach is based on rewarding teams for their collective accomplishments, such as meeting a certain goal or completing a task.
  • Bonuses based on company performance - this approach is based on rewarding employees for their contribution to the overall success of the company. This can include bonuses based on sales, profits, or market share.

In conclusion, Year-end bonuses are a great way to motivate and reward employees for their hard work and accomplishments. They can be implemented in various ways, such as based on individual, team, or company performance.


Year-end bonus — recommended articles
Extrinsic reward — Entertainment allowance — Recognition and reward — Indirect compensation — Bonus scheme — Organizational commitment — Forced distribution method — Job sharing — Cafeteria system

References

Author: Jolanta Guz

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