Bonuses Important to Employee Retention

ByRomy Ribitzky

Dec. 10, 2001 -- Ye olde holiday ham may not cut it for most workers, but when it comes to keeping employees happy, bosses may find that some form of year-end recognition beats no bonus at all.

At the same time, experts say workers counting on a holiday gift from their employers are waking up to a less satisfying reality, one where the once-traditional bonus has gone the way of corporate profits and disappeared.

"The mega-bonus era is over," declares Judy Olian, dean of the Smeal College of Business at Pennsylvania State University in University Park, Pa. "If there's less of a bottom line, there's less to distribute at year-end."

Where receiving a holiday ham, gift certificate or small sum of cash used to be a normal cultural practice in Corporate America, now what is routine are frozen salaries and job cuts. The Department of Labor reports that since the recession began last March, more than 1.2 million Americans have lost their jobs.

"Employees are expecting less this year in terms of merit-based bonuses and other pay incentives," agrees Bill Coleman, senior vice president of compensation at, a Web site that provides information on human resources and compensation. "The general population is resigned to getting next to nothing and will be pleasantly surprised to get something."

Yet, at this sensitive economic time, firms with a tradition of giving out a little holiday cheer should seriously consider to do so this year, says Alison Peterson, a senior consultant with Lincolnshire, Ill.-based Hewitt Associates, a management consulting and outsourcing company.

"If the gift is symbolic, it may be more important now than ever to show employees that their company cares about them," she conjectures. "If the expenditure isn't really big … it's important to make sure those who have survived layoffs feel good about the business."

Reconsidering the Bonus

Recession or not, holiday rewards really do matter to employees, finds the latest workplace survey conducted by opinion research firm Wirthlin Worldwide, for Xylo Inc., a Web-based human resources solutions firm in Bellevue, Wash.

Not only do 51 percent of employees surveyed expect some type of bonus, but four in 10 workers who receive year-end compensation report it positively affects their loyalty to the company, says Karen Olson, director of marketing for Xylo. Not surprisingly, not receiving a bonus can have a negative effect, which may lead employees to look elsewhere, she adds.

Experts agree that handling bonuses well is critical if businesses want to improve their chances of success in a tough economic environment. Already salary budgets for 2002 have been revised downwards, according to the latest salary report from WorldatWork, a not-for-profit association of professionals specializing in compensation, benefits and rewards, headquartered in Scottsdale, Ariz.

The firm's data shows that while companies said in May that 94 percent of their employees would be receiving base salary increases, now only 87.9 percent at those same companies will be getting increases.

That means companies need to take a hard look at where and on whom they do spend the money budgeted for increases, argues Kay Sandrik-Schmitke, manager of survey and research with WorldatWork. Managers should be most concerned with retaining top performers because they tend to drive up profits, Schmidtke explains.

Keeping the Employee … Happy

So what can companies that are strapped for cash do to boost morale and increase retention rates? Plenty, experts say.

Shifting the focus from a holiday bonus program to a merit-based program is one way employers can still retain staffers amid leaner salaries and dwindling corporate profits, suggests Peterson. "By tying rewards to performance, rather than the holidays, employees have a greater incentive to be productive because they have to earn their increases. It also eliminates 'entitlement' issues which may arise."

Merit-based raises also promote loyalty and overall job satisfaction, adds Fred Reicheld, author of Loyalty Rules!, and director of management consulting firm Bain and Company in Boston, Mass.

One way to quantitatively measure performance is by enlisting the help of the customer, he advocates. Reicheld says companies that calculate bonuses on customer satisfaction results — such as Dell Computer, Enterprise Rent-A-Car and fast-food chain Chick-Fil-A — are the ones bucking the downward trend, seeing little to no layoffs and even managing to grow as much as 220 percent the rate of their competition.

A Simple ‘Thank You’ Suffices

Other, non-monetary options can also suffice.

"Just a simple 'thank you' is good," states Coleman. The most senior person who has a working relationship with employees should genuinely thank them, cite examples of their good work and talk to them about their future with the company, he suggests. "Employees who are appreciated tend to want to stay … the personal touch has an amazing retention results because it's easier to break a corporate relationship than a personal one."

Giving extra days off, being flexible with schedules, and closing the office early are all easy ways companies can show their appreciation with little or no out-of-pocket expense, offers Olson.

Sensitivity to the work-life balance also goes a long way, but, mentions Schmidke, the best sign of respect is clear, honest, open communication with workers. "This is a very uneasy time for employees, full of gloom and doom and questions about the company's performance. It's important to tell them where they stand."

Something employers should strongly consider is that compensation is not the most important factor in job satisfaction, notes Schmidtke. Treating employees with respect, acknowledging their contributions and making sure the work environment is as pleasant as possible all surpass salary expectations, she adds.

Companies should make sure to consistently pay attention to those details in good times and in bad, concludes Peterson. "Employees will remember how they were treated and the last thing firms want is for their top performers to get up and leave as soon as the economy turns."

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