- The Washington Times - Tuesday, December 27, 2005

One of the tasks that many small-business owners tend to put off until the last minute is year-end bonuses — they don’t make their first calculations about how much they can afford to give and which employees will be receiving them until the year is almost over. Or, they may not even have decided whether they want to give bonuses in the first place.

Savvy owners start considering bonuses in November or December for the coming year, budgeting for them based on their projections for revenue, cash flow and earnings. They make adjustments as the year progresses, and then, in the last months or weeks, make their final determinations about amount and who the recipients will be.

“We try to budget at least as much as we’ve paid the prior year,” said Don Silver, chief operating officer of Boardroom Communications Inc., a Plantation, Fla.-based public relations firm with about 15 employees. Mr. Silver said the company has paid bonuses throughout its 16-year history.

Laura Grimmer, president of New York-based Articulate Communications Inc., said she sets an ideal target for a bonus, makes sure she has some cushion besides that amount, and “I start planning to lay aside certain percentages based on where we are.”

Miss Grimmer, who gives bonuses to seven employees, had given out the money on the anniversary of a worker’s hiring. Now, with her company three years old, she is switching to year-end bonuses because “I’m starting to see trends in revenue and profits.”

These owners, of course, already have decided that yes, they do intend to give bonuses. They view bonuses as more than just a holiday gift or thank-you for a job well done — they recognize that bonuses are an incentive for employees to do well. And, bonuses make a company more competitive as an employer.

“If you’re not showing people that you appreciate their work, they’re more likely to be wooed away by another company,” said Jeannette Boccini, a principal with LVM Group Inc., a New York-based public relations firm. “It goes a long way in terms of retention.”

Miss Boccini said LVM was using bonuses rather than salary increases because “the nature of a bonus is to show that the company has been profitable as a result of everyone’s commitment to the firm.”

Determining the reasons for awarding a bonus, and how much money to give, can be confusing for some business owners. There is no one formula, or right way to do it. Some companies award bonuses based on how long an employee has been with the business, while many others base the amount on how well the company fared during the year and how much the employee contributed to its success. In the latter case, each owner must decide how much weight to give to each factor.

At Boardroom Communications, bonuses are based on several criteria. “We do look and see how the company did, the longevity of the employee and their performance,” Mr. Silver said.

Others give a flat rate, the same amount to all employees. That can simplify your calculations, but it also reduces the bonuses’ effectiveness as motivating tools.

Some companies give the same amount every year. That also can lessen the effect of a bonus as an incentive.

Although the year-end bonus is considered something of a tradition, some companies choose a different calendar, for example, awarding bonuses on a quarterly basis.

Regardless of timing, another consideration is who should get the bonuses. At some companies, everyone from upper management to the people in the mailroom get a bonus. The theory is often that they all contribute to how well the business does.

At LVM, everyone except Miss Boccini and her co-principal, David Grant, receive bonuses. At Miss Grimmer’s firm, the senior managers receive bonuses. And at Boardroom, all the employees, including the office manager and receptionist, are awarded bonuses.

“They’re all important,” Mr. Silver said. “Without all of them, we couldn’t be able to perform like we do.”

ASSOCIATED PRESS

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