Coming up to the end of the year and many small business owners who have staff will have to deal with two things – employee evaluations and pay rises. Ongoing raises to meet the cost of living are expected, but many business owners struggle to figure out how they should be rewarding their staff.
Across-the-board raises
The easiest way to not have to worry about incentives is to simply give everyone the same raise – whether that’s as a percentage of their salary or a dollar amount. This is a good way to avoid favouritism – whether real or perceived, and allows staff to plan for the amount of money they will get. However, this doesn’t allow you to reward your top performers, and may mean longer serving employees aren’t compensated for their experience due to wage compression. This is where raises don’t keep pace with industry increases in starting salary.
Bonuses
There are a few benefits to choosing bonuses over raises. It allows you to reward work performance and can be a collective bonus to incentivise an entire group, or individual to focus one each employee. From a business perspective it also unties raises from the economy, which means during difficult times they can be lowered – or even scrapped completely.
However, that upside for the business can be demoralising for employees if you change from a raise system to a bonus one. They may interpret the change as a precursor to getting rid of any salary increases at all. Other downsides include the potential for employees to change their focus from doing their best work to doing work which gets them the most money. And if performance goals aren’t clear and achievable that can lead to greater frustration from the employee, knowing those unclear goals could end up costing them.
The money, or the bag?
Some businesses opt to scrap bonuses and instead spend the money on a company outing or other physical gift. This might be cheaper for the company, but is likely to be greeted with cynicism by employees. If you can give raises or bonuses along with a fun outing or nifty gift, that’s excellent, and will go a long way to letting your employees feel valued. However, if you’re faced with the choice between the two options, go with the cash every time.