By Rob Marchalonis.

Many organizations and leaders give year-end bonuses to their employees.  The big question is why?  Are your end-of-year payouts strategic and motivational or discretionary and taken-for-granted?  How would your employees answer this question?

How much connection is there, from the recipient employee’s perspective, to the bonus received relative to their contribution to the organization?

If the annual bonus is relatively small (less than 2% of total annual compensation) then it may not matter much.  “Thanks (again) boss, for this annual (expected) gesture of appreciation, that will help (a little) with holiday bills, but (honestly) it just looks like another (partial) paycheck.  Nice, (but not very life-changing). “

If the annual bonus is relatively large (more than 2% of total annual compensation) then it may matter, but not (really) work.  “Wow, thanks boss (seriously!).  This is awesome (but) I have almost no idea how the amount is determined or what (specifically) I have done to earn it.  More importantly, I don’t know what (additionally) I can do to make it even bigger, which I’m (very) interested in doing!”

Leaders, annual bonuses are OK, but why are you paying them?  What’s your objective?  What outcomes do you want for the organization and from your employee team?  Are your bonus payouts having the impact you would like, relative to what they cost?   There may be a better way.

Rather than a “discretionary year-end bonus”, consider formulating a way to “share your success” up-front (ahead of your performance season) based on organizational results or progress made toward your top objectives.  Call this what you like – incentive compensation, pay-for-performance, variable comp plan, profit sharing, etc. – but structure it to be variable based on some measure of significant performance results.

Would you like to structure better incentives,  get better results, and avoid costly pitfalls?  Let’s discuss.

Enjoy April!

Rob Marchalonis ( helps organizations develop variable compensation plans to prosper and grow. Read Rob’s book, IncentShare: Motivate, Recruit, and Get Results with Incentives, available at Amazon.