A journalist called and asked me about Christmas bonuses, and their seeming demise. Clearly, the economic downturn and the deteriorating employer-employee relationship (less loyalty and greater turnover) have had a big impact, so few companies continue the Christmas bonus tradition. I have written previously about the Psychology of Christmas bonuses, but here are a few other factors that employers, in particular, might want to consider if they are inclined to award bonuses.

Tie Bonuses to Performance. Make it clear that the bonus (Christmas or otherwise) is for exemplary performance, and decide the amount accordingly. The problem with giving a set amount each year, is that employees come to expect the bonus and begin to see it as part of their compensation (recall Chevy Chase’s character, Clark Griswold, in National Lampoon’s Christmas Vacation, who expects his Xmas bonus and essentially has spent it).

Consider Alternatives. If the Christmas bonus is actually a gift, then personalize it. Giving Fred the avid golfer a gift of golf balls and accessories, and Janet, the movie aficionado, theatre tickets, shows that you take an interest in employees. That will help strengthen the employer-employee relationship, and prevent it being seen as a one-size-fits-all, impersonal gesture.

Catch Them Being Good. Giving “on-the-spot” bonuses/rewards for particularly fine performance will work better than the Xmas bonus, because it rewards the employee for performance (rather than time), and it has the element of surprise. Research on positive reinforcement clearly shows that incentives are stronger if they are tied to performance and unexpected (the analogy is the slot machine-addicted gambler, who keeps playing in anticipation of the big payoff).

The bottom line is that bonuses can be a good incentive, if used in a wise (and psychologically sound) way, but more important is developing a strong relationship with employees – rewarding performance and recognizing their individual contributions.

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