For many, bonuses average 10-20% of their salary. And for those in areas of finance like hedge funds and investment banking, performance-based bonuses can account for as much as 90% of total compensation for the year.
The stakes are as high for managers as they are for employees, especially when bonuses are lean. A happy employee almost guarantees retention while an unhappy employee is likely to consider employment elsewhere. As a recruiter in the accounting and finance industries, I’ve seen plenty of employees come looking for new opportunities after receiving a bonus that they felt failed to adequately recognize their contributions. This is especially the case if the employees don’t have reason to believe future years will be any different. In fact, many companies start actively recruiting in January, knowing that talent will be ripe for the picking.
With the economy still recovering slowly, many managers will have difficult news to deliver. You may not be able to change the numbers but you can manage expectations and control the delivery.
Here’s how to deliver those bonus numbers while maximizing retention.
- Communicate Consistently and Transparently
I advise my clients to communicate bonus structures to candidates even before they accept the job. Usually there’s a formula that incorporates company performance, division/group performance, and individual performance. The first two are largely out of the employee’s hands so focus on the individual performance piece, which is under their control, and how that is assessed.
Good managers continue to communicate this information throughout the year, consistently offering feedback on improvement areas that will impact their bonus and giving the opportunity to take control of the elements that they can. By the time bonuses roll around, your team should already know where they stand and why.
- Don’t Shrug it Off
Even if you control your team’s expectations, the outcome can still be disappointing. No manager wants to be the bad guy so it’s natural instinct to position the number as out of your hands and downplay the significance. Managers say some version of -“It’s been a tough year for the industry but everyone’s bonus took a hit so it’s not just you.” What your employee hears is “don’t be disappointed, it’s not that big of a deal.” Being told the lower bonus “isn’t a big deal” only exacerbates the disappointment by marginalizing your employee’s emotions. Avoid this problem by being empathetic and validating any feelings of anger or frustration. “I know you’re disappointed in this number. I would be disappointed too.” If they need to vent, listen and sympathize. Then pivot and bring their focus to the positive.
- Emphasize Performance
Employees want to feel valued. Great managers tell their valuable employees they are valued all year long and now is the time to assure them their bonus reflects that even if it doesn’t feel like it. Make sure your high performing employees know how they measured up to their peers both financially and in performance. While you may not be able to offer more money, sharing that they outperformed their peers is valuable in itself.
- Focus on the Future
Now it’s time to engage your employees in their future success and that of the company. This is critical for retention. If you had a bad year and that’s an anomaly make it clear that the track record shows the numbers will rebound. Give them reasons to believe the future is bright if you can do so truthfully.
Talk to them about their career growth over the next year: new projects, new responsibilities, development opportunities, and potential promotions. Share what exciting developments they can expect from the company and the opportunities they may present. Let them know that you are their partner in helping them grow their career.
Been through this process? Share your tips for a smooth bonus delivery below.