Managing bonus expectations in tough economic times

It’s been a difficult year for most companies with the unprecedented negative economic and political climate. Companies are battling to be profitable.

It’s also a time of year where many employees have an expectation of receiving some reward in the form of an annual bonus. A bonus is different from a 13th cheque, as payment of annual bonuses isn’t guaranteed.

The employer can decide whether he wants/is able to reward employees by paying a bonus. If it’s never been the practice there’s no fear that the business falls foul of the labour laws.

If the company has a policy of paying a guaranteed 13th cheque – stipulated in the employee’s employment contract – it’ll be a transgression of labour laws if the payments aren’t made.

And, if the company habitually pays out bonuses, but this year cannot afford to, it must inform its employees well in advance as such.

Ideally, employees would be informed at least six months before the time that there’ll be no bonuses, to ensure there are no expectations.

People tend to over-commit themselves if they expect a bonus at the end of the year. Performance-linked bonus Many companies have also established a “performance-linked bonus” policy where performance targets are set at the start of a financial year. Specific performance targets are set for individual employees, mainly those in senior management positions who have a direct influence in the way the company is run and performs.

The bonus is normally calculated as a percentage of the employee’s remuneration and the company should have a clear policy in place, which sets out the criteria to be met for the bonuses to be paid out.

Generally there’ll be a component of business performance targets to be achieved for the company. The policy must be clear about how bonuses will be calculated; this must be completely transparent. Impact of no bonus Despite receiving forewarning, not receiving annual bonuses is certainly demotivating. As this potentially affects productivity, it would benefit a company greatly if it is open and transparent about its financial situation and future prospects of re-introducing bonuses.

Companies can find other, less expensive ways of motivating employees if they’re unable to afford bonuses, including days off for years worked or rewarding overtime with days off. It may even include a wellness day at the office or allowing for flexible working hours in certain circumstances. The fortunate ones Employees fortunate to receive a bonus should be cautious not to spend it all on holidays or gifts, but rather to use it wisely to reduce debt, for instance.

Lavine Haripersad is vice chair of the South African Payroll Association