END OF YEAR BONUS: Good News or Lump of Coal?

It is that time of the year again. Whether you celebrate Christmas or not, December is an important period for all. It's time for the end of year celebrations and festivities ... but paradoxically, a good number of us also see this season coming with anxiety.

Companies are closing their annual reports and preparing budgets for the next year.

Employees are looking back at their achievements and hoping their bonuses will be up to their expectations. Managers are wondering how they will be able to get the right messaging to their teams to motivate them for the coming year despite the inevitable deception some of them will have regarding their bonuses.

THE GRINCH

The large majority of companies still extensively use Annual Performance Reviews to "reward" and "motivate" although it has long been proved to be unproductive (See Performance management is broken). Unfortunately, whereas the objective behind those annual review models are to boost performance and reward employees, the reality is that only a small portion of the employees will get something up to their expectations (less than 10% of employees are promoted per year).

The truth is indeed that beside these happy few who will benefit from the model and really feel strongly valued by the company, the large majority of the employees will at best think they just get what is owed to them, or at worse feel frustrated and betrayed.

Neuroscience research shows that conversations about compensation provoke an almost primordial “fight or flight” reaction among employees, which obviously inhibits any productive effect of the feedback or coaching process. (See David Rock's article: “Managing with the brain in mind”).

“Leaders often underestimate the importance of addressing threats to fairness. This is especially true when it comes to compensation. In organizations, the perception of unfairness creates an environment in which trust and collaboration cannot flourish.“

SAVING CHRISTMAS

If your company is one of the many still using annual performance reviews, here are few tips for managers on how to get the right message about annual bonuses and promotions without spoiling morales for the end of year season:

1. KEEP IT SHORT AND OBJECTIVE

• Be respectful: Meet all your direct reports face-to-face to announce the annual bonus and salary decision. Receiving this by email is not good practice and shows poor respect for the employees.

• Be transparent: Before the discussion starts, make sure the employee is clear about the decision process. It should have been clearly communicated before, but if not you need to make sure there is no misunderstanding. Transparency in the decision process is critical.

• Do not debate: The end of year appraisal discussion is more an announcement than a conversation. It is not a Performance Management conversation. It is not a Career conversation. Keep it brief. Schedule separate meetings for the performance and the career discussions.

• Do not negotiate: At this stage, annual bonuses and promotions have already been decided and there is nothing an employee can do about it. “The number” is set, do not open the option to negotiation. It can only increase the employee’s feeling of unfairness, lack of transparency and frustration.

2. TALK EARLY AND OFTEN

• Start off on the right foot: Start the year by discussing compensation. Talk as early as possible about what kind of bonus or raise can be expected, how bonuses are calculated and promotions decided.

• Set the right expectations: Ask your direct reports their expectations in terms of salary raise and bonus for the coming year. This can help stave off later disappointment and level expectations. Plus, by allowing the employees to imagine themselves in the decision-making role, they are likely to be much fairer in their assessment.

• Regular check-ins: Talk regularly about how the employee is performing throughout the year. This will help clarify expectations on both sides and make sure the employee is not taken aback by the decisions at the end of the year.

• No surprise: When managers sit down with their direct reports to talk about salary, bonus or promotion, there shouldn’t be any surprise. Salaries and promotions should not be discussed just once a year. Some employees might be unhappy with the outcome but none should be surprised.

3. DO PERFORMANCE EVALUATIONS SEPARATELY

Discuss Compensation and Performance separately. When talking about money in the shadow of performance, the employees just fixate on the compensation and will not be in a position to fairly assess and challenge their performance. Ideally, leave few weeks between the Appraisal and the Performance conversations.

4. SCHEDULE A SEPARATE CAREER CONVERSATION

The Appraisal conversation is not a Performance Management conversation, and it is not a Career conversation either. Refrain from the temptation to provide suggestions or advice at this stage. First, because once you have shared the news around annual bonus or appraisal, the employee will not be receptive to any feedback. Second, because a good career conversation requires preparation and mindfulness to allow fair discussion, productive planning and good execution.

5. PREPARE FOR THE CONVERSATION

• Prepare: Write down your main points and rehearse them (especially if you anticipate a difficult conversation). Make sure you do not make a direct link to their performance.

• Be ready for a reaction: Even if you think you’re giving great news, be prepared for some emotion. These are loaded conversations. Use empathy to anticipate employees expectations and reactions (How is this person going to hear my message?). In a lot of cases, employees will not receive the raise or bonus they have been hoping for. When an employee gets upset, make sure you hear them and recognize their emotions but don’t cave. If there’s a way to address their concerns offer to get back to them in a few days. It’s your job to go to bat for the employee if you feel it’s warranted. But don’t leave the door open unless you intend to take action. That will set a bad precedent for future conversations.

• Communicate their value: Tell how important they are to the organization. Tell them you deeply value their contributions. Don’t just let the bonus or raise figure speak for itself. Make it clear that you appreciate their work. Inspire them to continue to create value.

• Provide context: When employees are disappointed by their raise or bonus, it’s often because they lack information. Share the big picture with them: How the company is performing compared to competitors and the range of raises or bonuses the organization is offering this year. Ground it in facts. Explain what people are getting for the same job in this market. Also explain how the decision behind the numbers was made. But do not engage in conversation about other employees’ pay at all.

WANT TO TRY IN A GRINCH-FREE CHRISTMAS?

First, reconsider the overall Performance and Annual Review model you have in place and evaluate the options of simplifying or even getting rid of it. Is it actually providing the expected outcome and driving the expected behaviours? Is it worth the time, money and efforts invested? Do we actually have Performance issues? Deloitte set a great example with their performance management system redesign.

Then, also review your Recognition model. How do you reward your employees? Is it impacting motivation and performance effectively? A study showed that monetary incentives are great for routine, mechanical work. But how does it play when talking about cognitive, advanced tasks? Not well at all according to Dan Pink!