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Not Enough Money for Bonuses? Breaking the News to Employees

written by: •edited by: Linda Richter•updated: 8/27/2011

Many business owners who regularly give out annual bonuses may have to stop them due to tough economic times. If this is your business, how do you break it to your hard-working staff when they often they depend on those bonuses each year? Jean Scheid offers some advice for the business owner.

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    The Griswold Scenario

    No Annual Bonuses In the movie, National Lampoon’s Christmas Vacation, Clark Griswold awaits his annual Christmas bonus—his plans for the bonus are big—a new swimming pool in the backyard! Clark’s boss, Frank Shirley has a different plan for bonuses, however: a year’s subscription to a jelly-of-the-month club.

    Times are tough for small business owners and very often they seek ways on how to tell an employee, “No bonus this year," and that’s difficult for both the employer and their employees.

    In the Christmas Vacation Movie, the boss (Shirley) is kidnapped with hopes he’ll cough up a bonus much as he did in other years.

    As an employer this would be the extreme where your employees kidnapped you demanding an annual bonus, but what if you can’t afford them this year?

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    Discuss the Situation

    Clark Griswold’s boss's solution to denying annual bonuses was simply not telling the employees and that’s never a good idea. Many employees--if they are used to receiving a bonus and make plans in advance on how to spend it (they may charge items on credit cards thinking to pay them off with the bonus) and then find out at the last minute no bonus is coming—will be devastated.

    As soon as your discover your cash flow won’t allow for bonuses, you need to openly discuss why you can’t afford them with every employee.

    If you have a few employees, gather them together and let them know where the business stands. You don’t have to tell them how much money you have or how much the business is in debt, but you do need to explain that due to financial circumstances the annual bonus won’t be coming.

    For larger companies with department heads, it often helps to speak to leaders first and then gather the company together. Department heads won’t be happy either, but they can help sway the employee dissension once the no-bonus meeting is over.

    For some employees and companies, simply telling them there will be no bonuses this year is not enough. Employees tend to feel the company really isn’t in financial hard times and because they aren’t privy to your day-to-day cash flow struggles, they’ll still expect (and maybe demand) their annual bonus.

    In other words, they want some recognition in some form or another.

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    Other Options

    Throw a Holiday Party I have a friend who is a small business owner and one year, not only did he decide the bonuses would be gone, he didn’t offer any notice to employees or consider other types of incentives. Holiday parties and other rewards that are cost effective when bonuses are out of the picture can often turn a bad situation into a good one.

    The National Federation of Independent Business (NFIB) offers ways on easing the sting of no annual bonuses. Here are some of their tips that do work at little cost to the company.

    Contests – A company I worked for once offered this type of event instead of the annual bonus. In my environment, four employees shared single office spaces. Each office of four entered in a “decorate the office door" contest where the winners received a day off with pay and $100 for the group to split. Not only was this a fun event where teams really worked hard on their office doors, it also helped to engage employees, allowing them to feel the company really did care even if bonuses were out of the question. The only trick to contests is ensuring every one, at every level, can be involved.

    Parties or Outings – These, much like annual picnics, can also aid when cash is tight. A group party away from the office where employees can eat and talk and have some fun with planned games will be well received. If you live in a state where end-of-year weather allows for it, seek out local parks for tips on holding employee events outside. If weather doesn’t permit an outdoor event, seek out bowling alleys, conference centers and local restaurants to cater the affair. The trick here is to not hold the event at the office and, if you can afford it, allow employees to bring their spouses, partners or significant others.

    Inexpensive Gifts – If your employees are used to getting $500 a year in that bonus check, while you can’t match that money in a gift, you can come up with some inexpensive gift ideas that won’t break your bank account. Gift cards to local favorites like coffee houses or to catalog companies or movies and restaurants are great ideas. If you really want to make your employees happy, find out the likes of each and find gift cards that will cater to their likes. For example, if Joe in accounting loves reading, a gift certificate to a bookstore is a great idea. One mistake here is to not purchase lottery tickets for employees—go the gift card route instead or find other inexpensive gifts your company can afford.

    Business Partnerships – A company I owned did this one year and employees loved it. Another small business owner in our area (a restaurant) also could not afford bonuses. Because I was a close friend of this business owner, we decided to pool our resources and hold a larger, joint annual party. By combining our dollars, we were able to not only afford a more expensive venue, but have door prizes and a favorite local band where employees could sing and dance the night away.

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    The best lesson you can learn on how to tell an employee there's no bonus this year is to communicate. Many business owners fear announcing there will be no cash given out, but those who leave their employees in the dark about the lack of bonuses often face more anger than those who communicate effectively with their employees, answer questions the best they can on why the bonuses are out, and find and implement some great alternatives