Year-end bonus

Year-end bonus
See also
Time study Non financial motivation Forced distribution method Quality of worklife Success criteria examples Acquired needs theory Employability skills Work instruction Employee performance

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, s. 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, s. 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, s. 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, s. 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, s. 616).

References

• Briscoe F. (2011). Local Employer Practices and Positive Career Outcomes For Work-Family Program Users. American Sociological Review 76, no. 2, 11-12
• Chung S. (2010). Does the Frequency of Pay-for-Performance Payment Matter?-Experience from a Randomized Trial. Health Services Research, 45(2), 554-561
• Healy, P. M. (1985). The effect of bonus schemes on accounting decisions. Journal of accounting and economics, 7(1-3), 85-107
• Pouliakas K. (2010). Pay Enough, Don’t Pay Too Much or Don’t Pay at All? The Impact of Bonus Intensity on Job Satisfaction. KYKLOS, Vol. 6, 616

Author: Jolanta Guz