Employees of the world -- Vote here

Miscellaneous and Personal Stuff I Must Share
1

A wonderful, but vexing dilemma – a major customer who owed an installment chose to pay off his entire account (which was not expected to be cleared until next June) in a single lump sum this afternoon. The company has had a fine year, and the bonus checks I had planned to hand out on Thursday already amounted in most cases to 25% of yearly salary.

Tax and accounting issues notwithstanding, my people have been rewarded with a substantial and unexpected year-end windfall. From a pure business perspective this should count against accounts receivable through next June, and should be hoarded, but unbeknownst to my employees I have also just landed a financing deal which will easily triple our revenues next year. I run a meritocracy, and thus arises my dilemma.

My folks know well that they have earned a good year for us all, but have no clear idea that they were already going to get unprecedented bonuses. Given this sudden cash position, would ye vote to:

 1. Distribute substantially more cash than had already been planned.
 2. Increase planned bonuses modestly, and announce a major benefits upgrade.
 3. Temporarily hide the money in a rainy day fund to ensure that everyone stays employed if things don't work out as expected.
 4. Distribute the money on a pro-rata basis as a lump sum gift across the 401k plans.
 5. Keep the money, and take meself out of the runnin' fer the 'Boss Of The Year' nomination.
 6. ? (Ideas Solicited)

I should mention that I only employ sixteen people, and regret hiring only one. I am blessed with a great group, and wish to do well by them. I’d put this to a vote internally, but time is short, and ye can understand the certain complications of opening the books to the inmates.

2

As an employee, I’d say hook me up with that fat bonus.

But from your standpoint, I can see how this would be a bad idea. Give them a big wad of cash, and they’re going to expect the same every year. Maybe they won’t openly complain a year or two later when they don’t get big bonuses, but there will be plent of silent resentment, I assure you.

If they get big bonuses this year, many will have probably already spent next year’s bonus before they even get it. When it doesn’t show up, you’ll have some debt-riddled employees.

I say a modest increase in the amount of the bonus should be in order.

But then again, maybe I’m just bitter because I’ve never gotten a bonus in my life :slight_smile:

3

Be careful about going overboard with the money.

Economics class is rife with examples of employees wanting to work LESS when they make more money. The reason is clear. Whenever anything becomes more abundant, it loses value. Even money. In essence, your employees could begin to value leisure time over monetary compensation. Especially if the bonuses mean they can afford the boat, pool table, computer, or whatever, they’ve always been wanting.

I would put the money into upgrading their benefits and retirement. As they see the balance in their retirement funds increase, they will thank you for it, but they will still need to work to pay the bills.

4

Can I come work for you, and is my bonus in Canadian or American dollars? :slight_smile:

I opened the door, and look who I found. Damn I’m good

5

I’d say 3, hide it for a rainy day.

Not knowing your business, it’d still be better to hedge your bets.

My brother-in-law got in the bad habit of spending windfalls in his and my sister’s business. Then he started to depend on them. Before they knew it, they were out of business.

I looked in the mirror today/My eyes just didn’t seem so bright
I’ve lost a few more hairs/I think I’m going bald - Rush

6

Of course, as an employee, I’d say, “Show me the money!” :slight_smile:

7

Number 3, since the employees are getting a bonus anyway. You and they will be glad the extra money is there in less prosperous times. Remember, sudden unexpected expenses are usually more common than windfalls!

8

My credential: I (and my firm) consult on employee benefits and compensation.

So…I suggest that you start with an assessment of your business goals and growth/investment plans, and then measure your thoughts against those. Questions include:

  • to what extent does employee job-satisfaction produce more income for you later?
  • what message do want employees to hear? what messages will any particular approach deliver that you didn’t intend?

One question not clear to me: is this windfall the result of a sale that will happen next year for which you are being paid this year? or is this the result of a change in accounting/financing methods (in which the employees played no role)?

The ideas you suggest are all possible, let me comment briefly on each.

<< 1. Distribute substantially more cash than had already been planned. >>

I suggest against distributing TOO much more cash than already planned. An additional 2% to 5%, OK. An additional 20% would be too much, and would deliver unintended (and awkward) messages like:

  • This jerk doesn’t plan very well financially, does he?
  • Wow! Great! we’ll get these huge surprise bonuses every year!
  • Wow, this is a good enough bonus that I don’t need to work the next two months, I’ll take an unpaid vacation or sick leave or something…

Furthermore, if some of this windfall is due to a financing deal for next year, then some of it should certainly be saved for distribution (in whatever form) next year. If nothing else, you may have a new employee next year who should share in the profit, or an employee who leaves who shouldn’t. (I’m not sure of the extent to which employees did or will contribute to this.)

<< 2. Increase planned bonuses modestly, and announce a major benefits upgrade. >>

I like this one better, because it ties the bonuses more to performance… and because benefits are important and often overlooked. It also spreads the windfall over future years, which preserves some stability.

<< 3. Temporarily hide the money in a rainy day fund to ensure that everyone stays employed if things don’t work out as expected. >>

Similar to (2), and sort of depends on how volatile your business is. Our business does SOME of this with unexpected windfalls, but I wouldn’t squirrel away the whole amount.

<< 4. Distribute the money on a pro-rata basis as a lump sum gift across the 401k plans. >>

I’m not an expert on 401(k) plans, but there is a maximum contribution (possibly no employees are at that level of income.) However, this is sort of tied into (2), as a benefits improvement, putting some of the money into a tax-deferred investment vehicle.

<< 5. Keep the money, and take meself out of the runnin’ fer the ‘Boss Of The Year’ nomination. >>

Well… depends. The choice of how much the owner(s) of the company keeps and how much goes to employees is a question of balancing current profit vs investment in the future. To what extent will satisfied/engaged employees produce more profit for you in the future?

There’s also direct investment: new furniture, computer upgrades, more comfortable work environment, etc.

There is nothing wrong with multiple approaches, either, although be careful not to split it too far. Too much dilution would deliver no message at all. “You’re getting an extra 0.02% bonus and we’re putting 0.34% of your pay into your 401(k) and we’re going to add a life insurance program of $200 death benefit…” delivers the message that you’re clueless.

OK, that’s all my thoughts for free. Additional, my rates are USD 400 an hour.

9

To be honest I was sure that greed would carry the day here, and am surprised by the sober caution. Certainly you are all a credit to your professions.

To answer a few questions, our business is tremendously cyclical and there have been many times when I have spread my own paycheck around to avoid losing key people and good friends. Out of fairness I keep everyone well aware of our financial state, partly to head off unrealistic expectations and partly to ensure that everyone is aware of their options and the importance of their role. The windfall is fully earned, and results from a project finished last Spring which all agreed in a company vote to share the risk by taking back a major portion of our fees by way of financing. Had the deal gone south it would have been me own head solely on the block, but it was my people’s good work that brought the project in successfully.

Last year’s bonuses were modest, ranging 5 to 8 percent, so the 25% average planned for this year will already exceed all possible expectations (my senior project manager will be geting $20K). Which is to say that we’ve had a very good year even without this early payment.

CKDext – Wow! Thank you for a fine analysis. I’ve always believed that one motivates professionals with money, and have attracted and kept good people by liberally spreading the cash rather than being parental and making people’s financial decisions for them. But your points are all very well taken.
Dr. Watson

10

Boy, I’ve never gotten a bonus. Of any kind. Nor have my cow-orkers (other than the big muckety-mucks who ALWAYS get bonuses - line staff can go stuff gerbils as far as bonuses go). So please fire that loser employee and hire me - you won’t be sorry (and apparently I won’t either)!

StoryTyler
“Not everybody does it, but everybody should.”
I Spy Ty.

11

My two cents would be that since you’ve already planned on giving 25% bonuses, you’re covered on the “good boss” front. At this point, I’d recommend putting the additional money in a rainy day fund. After all, you’re indirectly helping your employees by making their jobs more secure.

12

Story – yer frustrations are well understood. I started my own firm for exactly the reason you cite – all the companies I had worked for believed in their hearts that the employees were as replaceable as the furniture. Though I take my ‘Blessing in Dissatisfaction’ daily, I expect that I’ll have the last laugh, as I slowly hire the best and brightest away from my competitors.

I must decide this by close of business tomorrow if the bean-counters are to have any hope of arranging the checks and paperwork for Thursday. Though my initial instinct was to hand out the bulk of the cash, I’m now leaning towards a split between a benefits upgrade and an account dedicated to future payroll guarantees. Again I must say that I did not expect this line of advice, and thought that everyone would uniformly shout, “Give Me The Damned Money!”
Dr. Watson
“Inviting the next post to read – Give Me The Damned Money.”

13

Don’t increase the bonuses. Save the money for a rainy day and/or reinvest it in expanding the business.

14

Crick – there are countless surveys among employees about what their main concerns are, and what gives them job satisfaction. In the U.S., “additional money” usually comes fairly low on the list – aroudn 6th or 7th place, if I recollect. First place tends to go to interesting job, appreciation, acknowledgement, respect, and similar “touchy-feely” kinds of rewards.

Now, this is different you’re dealing with people who are unemployed or badly underpaid. But once salaries are in the right range, additional money doesn’t serve as a primary motivator.

I see some of these CEO salaries with bonuses in the tens of millions of dollars, and wish that the Compensation Committees on the Boards were aware of those surveys.

15

OOops, sorry, I didn’t read your comments carefully enough, Crick. By no means am I suggesting “being parental.” Providing benefits is not “being parental”. Insurances (life insurance, health insurance, disability insurance) are it’s provided by employers at lower cost than individuals could buy for themselves (because of the group insurance rates, avoidance of headaches like medical exams, etc.) 401(k) plans and similar are providing a tax-effective savings vehicle that is difficult for an individual to obtain on his/her own.

“Being parental” is usually badly perceived in today’s U.S. market.

Other suggestions, of course, could include a special company holiday – give all the employees an extra day off, have a big company party or picnic or outing (including families, offsite.) Lots of stuff that you can do with excess cash that you want to spend improving employee job satisfaction.

Damn, I said I was done with the free advice!

16

A word of advice: A huge bonus can wreak havoc on people come April. I wouldn’t surprise anyone with a huge check, esp. at the end of the year, without giving them an opportunity to talk to their financial planners about how they should have it taxed.

And, as people have mentioned before, a huge bonus is wonderful until the next year. If your employees start to expect it, then you’ve created a negative work environment.

I’d either put the money into their 401k plan, or I’d save it for a rainy day.

17

CK is right about money not being the primary motivator for employees. One of the largest motivators is feeling important and getting recognition for contributing to the success of the company.

Employees need to be reminded that their efforts make the difference between success and failure.

I would suggest keeping the bonuses where they are (I believe you said they are already getting 25%??). I think it is important that you make it very clear that the bonuses are due to their hard work and contribution to the success of the company instead of just a handout.

“It’s like banging your head against a wall because it feels so good when you stop.”

18

Well folks, the results are in. May I have the envelope please? <insert dramatic fanfare here>

I’ve decided to use half the windfall to upgrade our insurance plan to eliminate all co-payments and expand coverages to include full dental and eye-care, full disability in place of partial, and increase all life limits, as well as to install the damned lockers and showers that everyone has been hollering for and I’ve been stubbornly resisting. (This is partly selfish, since I’ll benefit by not having to smell the buggers when they come back from their lunchtime sweatathons.)

The other half will go into an investment fund dedicated to future payroll guarantees, a thought that has delighted the bean-counters due to the enormous amount of paperwork this will generate for them in perpetuity.

I thank you all for your input, which has helped tremendously. A special thanks to CKDext for bringing a professional eye to the problem, and sharing what would otherwise surely be expensive advice.

I wish ye all friendly eyes, work well done, quietness born of trust, and the best of the season.
Dr. Watson
"Boy is my ex gonna be mad when she finds out about this . . . "