One of the most heart-warming stories I’ve come across this holiday season is about a company that gave its employees end-of-year bonuses based on tenure with the company. In this age of high employee turnover and lack of company and employee loyalty, it was refreshing to see that length of service with a company still matters. Did I mention that the average bonus was $50,000?
It was a very good year for St. John Properties, a commercial real estate firm headquartered in Maryland that began operations in 1971 as a small real estate company. This year, it hit a target of developing 20 million square feet of real estate. St. John Properties President Lawrence Maykrantz wanted to show appreciation to its employees by doing something extra special. According to CNN reports and other news sources, the company flew in all out-of-state employees and their guests to the company’s holiday party. There, all 198 employees received a surprise red envelope containing their bonus. Each employee received money based on the number of years they have been working at the company. The smallest amount, $100, was for an employee who was just hired and hadn’t even started at the company yet. The largest bonus was $270,000. In all, $10 million was paid in bonuses.
“It was truly one of the most amazing things I’ve ever witnessed in my life. Everyone was all overwhelmed with emotions. They were screaming, crying, laughing, hugging,” Maykrantz said.
Although I mentioned that this was a heart-warming story, it should be noted that end-of-year bonuses come in all sizes and types and are not necessarily appropriate for all companies. But who cannot be inspired by the above story?
Length of service, or tenure, is just one way of calculating and distributing bonuses. Also, there are pros and cons for each type, and whether to even give out bonuses. The bonuses discussed here are end-of-year bonuses based on the company’s performance, not incentive or performance bonuses. Even though they may be awarded at the end of the year, performance bonuses are another matter.
Bonuses based on tenure can be calculated in a variety of ways and should be based on the company’s values and what it wants to reward. Tenure bonuses can also be two-fold. For example, every employee might receive a minimum bonus, plus an additional amount based on length of service. To illustrate, every employee might receive $1,000, plus $500 per year of service. Thus, a new employee who has been with the company for less than one year would receive $1,000, while someone with the company for 12 years would receive $7,000 ($1,000 plus 12 x $500). A variation on this method would be that every employee receives $1,000 plus $500 for every five years of service. A 12-year employee under this scenario would receive $2,000.
Equally distributed bonuses are another way to share the wealth. Under this method, every employee gets the same amount of bonus. It may be based on some formula or set by management. For example, the company may say that everyone receives a $1,000 bonus.
Percentage bonuses are based on the employee’s current salary. Everyone receives a bonus of five percent of annual salary, for example.
Bonuses don’t necessarily have to be given as cash. The company might make a contribution to the employee’s 401-K account. Some companies have chosen to make a contribution to a certain charity in the name of, or honoring, employees. Giving stock, stock options, or some form of equity in the company is another type of bonus. And then there are things like highly-sought-after tickets to events, trips to desirable locations, gift cards, etc.
What’s the best way to distribute bonuses? Again, it depends on what the company wants to accomplish. One way is for department heads to distribute the bonus as cash in an envelope. This reinforces the connection with immediate supervisors. Other ways are presentations at company-wide meetings and celebrations, individual letters to employees and – yes, but not recommended – by email. Unfortunately, there may be some employees who gripe and complain and find fault no matter how bonuses are handled. That’s an employee who needs special attention.
Every company is different, so what is appropriate for one company might not be right for another company. Paying bonuses is a good way to show employees that they are appreciated, but caution must be used. Some employees are sensitive about who gets paid what and may cause controversy about why some employees weren’t paid the same as others. Also, companies must use caution in creating expectations for annual bonuses.
In general, employee bonuses can improve performance, reduce turnover, attract new candidates and instill company pride.
» PHIL HARDWICK is a regular Mississippi Business Journal columnist. His email address is firstname.lastname@example.org.
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