Death of the Holiday Bonus

John Riley never second-guessed his decision to give his employees cash for the holidays.

Workers earned $25 for each quarter they had been with his human resources consulting firm, or $100 a year.

But it wasn’t long, says Riley, before staffers viewed the money as an “entitlement” they were owed, not a gift to recognize service.

When Riley sold his company and began a different human resource firm a few years ago, he seized the opportunity to do things differently. Today, staffers at his Orlando-based firm, Co-Advantage, get hams for the holidays.

“People would stick around to the end of the year to get the bonus then quit after Christmas,” Riley explains. “The program worked against us. Now, it’s not like someone’s going to stick around for a ham, but they’re still excited to get it.”

What's happened at Co-Advantage is happening at companies nationwide, according to a survey released Tuesday by Hewitt Associates.

This year, Hewitt says, only 35 percent of employers will give some sort of holiday bonus, including cash, food or gift certificates. Instead, far more employers – eight out of 10 – are funding performance-based bonuses that reward only the best workers. The message: just logging hours isn’t enough to warrant a holiday surprise.

“Most organizations are seeking a direct connection between performance and awards,” says Ken Abosch, a business leader at Hewitt. They’re “focusing on variable pay incentives, which are designed to help employees concentrate on company goals and objectives while eliminating entitlement issues that often arise with a holiday bonus plan.”

Paying more for talent. Another trend in this tight-fisted age is the rise of performance-based bonuses. Also known as “short-term incentives,” they can be worth far more than any of these holiday gifts.

“If someone was been with us for five to 10 years, they would have received $500 to $1000,” says Riley, who started his performance-based bonus program after he evaluated the efficacy of his old holiday cash gifts. “Now, they make much more than that under the new compensation program.”

Top performers may also get gifts as well as a bonus.

Source: CNN/Money