Show notes
Are you planning to reward your employees with a surprise bonus this year? Before you do, tune in to this episode of The Bonus Podcast to discover why that well-intentioned gesture could go wrong and how to create a bonus system that truly motivates your team.
The conversation focused on the pitfalls of giving employees surprise bonuses, especially when there's no structured plan or clear communication. One concept discussed was how a surprise bonus, even when meant as a generous gesture, can lead to confusion, frustration, and unintended consequences for both business owners and employees.
A key theme that emerged was the importance of tying bonuses to specific goals or performance metrics. The discussion explored how setting clear expectations and communicating the "why" behind bonuses helps employees understand what behaviors or achievements are being rewarded, ultimately encouraging long-term engagement and higher performance.
Several points were raised, including:
- The risks of setting unintended expectations with surprise bonuses and how this can lead to disappointment in future years 02:19.
- How clearly defined bonus criteria prevent misunderstandings and foster alignment 04:07.
- The emotional impact on employees when the reason behind a bonus is unclear or changes year to year 02:11.
- Strategies for introducing a new bonus plan, even late in the year, while keeping employees motivated and informed 05:08.
Key Takeaways
- Surprise bonuses can backfire. Without clear communication, they might set new, unwritten expectations for the following years, causing frustration if repeated or reduced 03:12.
- Define the purpose of your bonuses. Connect bonuses to specific company goals, such as revenue targets, client retention, or profitability 01:25.
- Communicate goals and requirements. Give your team insight into what earns a bonus and how they can influence outcomes 05:13.
- Consistency is crucial. If you commit to a bonus structure, stick with it to maintain trust and motivation 06:37.
- Generosity needs a plan. Even spontaneous rewards benefit from transparent criteria and advance notice 06:51.
Ready to rethink your approach to employee bonuses? Don't leave your team guessing, create a bonus system that rewards the right behaviors and fosters a culture of ownership and engagement. For personalized advice on compensation plans or to share your own bonus ideas, reach out to Andrew at andrew@builttobenefit.com. Stay tuned to The Bonus Podcast for more insights on building high-performing teams!
Read the full transcript
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Andrew Lamppa [00:00:03]:
So you got this idea. You're a couple months out from the end of the year and you think, I'm going to give my employees a bonus this year. Maybe you've never done it before, but business is good, cash is flowing. You're like, yep, I'm not going to tell them. It's going to be a surprise bonus. Well, on today's episode, we're gonna talk about why that's a bad idea. Hi, I'm Andrew Lampa and this is The Bonus Podcast, creating employees that think, act, and care like owners. So I was talking to a business owner the other day and he told me about his grand plan to create a surprise bonus for his team.
Andrew Lamppa [00:00:33]:
Now he has a small team, handful of employees. He's never paid a bonus before, but he had this idea of really surprising them. It's October when we had this conversation and I wanted to put the brakes on this idea a little bit. And here's why. You see, the first thing you want to do is you want to figure out what's, what's the purpose of the bonus? So if your purpose is simply to surprise them, to be generous, to share in some of the upside that maybe the company has had this past year, that is a good reason, but it can really backfire. But if your purpose is to reward behavior, hopefully drive them to perform at a higher level, to, to care more about the business, to show up differently, to maybe push a little bit harder when, when the client needs it or when the circumstances Require it. A surprise bonus isn't going to get you there. See, when a surprise bonus comes in, yes, the employees can be really excited.
Andrew Lamppa [00:01:34]:
Oh my goodness, $5,000 right before Christmas or right in the new year. This is amazing. But now they look for why'd they get it? What's the reason? So the boss said we had a good year. What does that mean? Are our revenues higher than they've ever been? Have we been really profitable? Have we kept a lot of our clients? Has some other metric been above what we were last year? Like there's all sorts of reasons to define we had a good year. And if they don't know that, they're gonna make some assumptions. They're probably gonna assume either revenue or profits, but maybe retention's been great. Maybe they haven't lost a single employee this last year. Maybe they're thinking about that.
Andrew Lamppa [00:02:19]:
Whatever the reason is, if they don't know why they got it, they're not going to know what to repeat to get it again. So if they think it's revenue or profit, well then if next year rolls around and they think they're doing better than the last year, let's say it wasn't on revenue and profit, it was on a new technology that you developed, a new process or workflows or automations, and you didn't tell your team. Now they think they should be getting ideally at least a bonus, at least the same as last year, most likely bigger than last year because their perception is they're doing better than last year. And if they don't, now they're frustrated because there was never any structure around why they got the bonus. It was just a surprise. So even, even if you surprise them next year with a bonus, but maybe you don't remember what you paid them last year, they do. And so now you do a new bonus. It's a surprise bonus.
Andrew Lamppa [00:03:12]:
You weren't, you didn't promise anything in January. You didn't promise anything. During the summer, in the fall, and you surprise them 2 weeks before the holidays with another bonus, but it's, it's smaller than it was last year. Now they're frustrated. That's not what you want to turn this blessing, this gift, this generous, you know, favor into something that actually backfires. Now, why do we do surprises? Why can't we just say, this is what we're going to do and here's what you're gonna get? A lot of business owners, they're nervous. They're nervous that, well, what if when the time comes, they don't have the money? They don't have the funds to pay out the bonus. Now they've made a false promise and that employees do not like false promises.
Andrew Lamppa [00:03:52]:
So we, we like to keep it a surprise. We want to not get in trouble and make a promise we can't deliver on. But once again, when you do a surprise, you can get in trouble. You can set expectations that you never meant to set. You can create confusion on why they received it in the first place. And there's like 99 ways it can go wrong. And there's only one way it goes right. That's if they receive it, they're happy about it, and they never remember it again.
Andrew Lamppa [00:04:23]:
And the next year rolls around, it's like last year never happened. And you can do another bonus, another surprise bonus, or no bonus, but it doesn't matter because they don't remember what happened last year. But sadly, that doesn't happen for most people or or anyone for that matter. What you want to do instead, if you want to do a surprise bonus, my first recommendation is don't. But if you want to do a bonus that you don't have a plan in place, there was no promise about it, but you still want to pay something, start a couple of months earlier, maybe September, October, even November, and say, hey everyone, we had a good year. Profits are better than they were last year. Revenue is doing well. I want to give a bit— a bonus out.
Andrew Lamppa [00:05:08]:
I'm going to pay it out December 20th, but here's what needs to happen to pay it out. And you give them some reason for it. It could be, if we hit this over the next month and a half, something that should bring the team along to hit it. It can even be almost a guaranteed slam dunk of a goal. Let's say goal is revenue and you want to hit $1.5 by the end of the year and you're at $1.4 right now. You have $100,000, 2 months to go. Your MRR alone will make $150,000 by then, not to mention one-off projects. So you're almost guaranteed to hit it, but you can still put that, that number in there, that qualifier to say, hey, if we can hit $1.5 by the end of the year, I'll happily pay out a bonus and it's going to be good.
Andrew Lamppa [00:05:59]:
And if we don't, we can't. That will at least signal a reason for the bonus. If you're not ready to put an if this, then that, at least tell the employees why they got the bonus. We got the bonus because our revenues were up 20% over last year. Our profits were up. But once again, that can still get you in trouble because if next year the same thing happens and you don't give a bonus because of some other, maybe a cash flow issue, a hiring spree, a big financial investment, a balloon payment for a debt, many things. If you don't stick to that course, if you don't repeat what you did last year, you're only going to frustrate your team. That's why in general, surprise bonuses, generosity bonuses, any bonuses that are not backed by a structured plan usually do not actually benefit the company at the end of the day.
Andrew Lamppa [00:06:51]:
So if you want to be generous, be generous, just have a plan, create a solid plan behind your bonus so that it won't backfire at the end of the year, at the end of next year, what have you. If you have any questions about what you're thinking about doing, you can always reach out. My email is andrew@builttobenefit.com. I'm Andrew Lampa, and this is the Bonus Podcast, helping you give your employees a reason to care.
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Meet Andrew Lamppa
Andrew Lamppa is a business coach, former 25-employee business owner and founder of Built to Benefit.
Before coaching business owners, Andrew spent 14 years building and operating his own company, which was running at 4x his industry’s profitability and 8x his industry’s growth at the time it was acquired in 2018. Along the way, he became fascinated with a question many small-business owners struggle with:
How do you get employees to care about the success of the business without expecting them to act like owners while giving them none of the upside?
Today, Andrew works with small-business owners to improve employee ownership, performance, profitability and leadership systems.
The Bonus Podcast is where he explores one of his favorite pieces of that puzzle: how businesses pay, measure, reward and incentivize the people helping build them.