Season 02 Episode 05: Should You Pay a Year End Bonus?

Let's talk about paying people bonus. It's the end of the year. Maybe it's on your mind. Let's chat.

Hello. Welcome to the podcast. Thank you for joining me. I'm Chris Plackey. Welcome to Leadership Is Feminine. I'm going to take a little bit of a detour off of our seasonal topic, which is CEO Magic. Although I do think, honestly, that having a clear and concise and consistent payment, how you pay people philosophy is honestly magic, because then you don't have to be, like, thinking about it all the time and wondering, am I doing this right? So this week in my how to CEO calls, we're having a lot of conversations about, do I give bonuses? It's the end of the year, and I'm going to share with you my, my insight, my experience, what I've witnessed from other clients. And then obviously, you get to do whatever you want. But I do think it's worth considering, like, really thinking about what you're trying to do when you say, should I pay people a bonus? So, first of all, a bonus is extra, right? Like, just in and of itself, the name indicates this is extra for you, and I'm going to give it to you as extra, right? So as we go through our year, ideally, right? This is ideally what we're doing. We've set up roles for everybody. Everybody has goals, Everybody has particular.

Expectations that they're supposed to deliver on, as what I say is the promise of their position. And then they either do or they don't. The salary that you pay them, the wage that you pay them, you is to meet those expectations. So if they meet those expectations, that's not extra. I just want to point that out. That's what you pay them for. Extra is extra. So the first thing I think we need to do is make sure that we're clear that a bonus.

Should be.

Focused on that you did extra, right? Okay. So I think bonuses, if you're going to pay bonuses, should be based on individual results, not on, we had a great year. Everybody gets a car, right? Because there's always somebody, or 4 or 12, depending on how big your business is, who is. They're not contributing at the same level as everybody else, but then they get the same bonus. That doesn't seem right to me, especially if they didn't even meet their expectations of their role. So again, and you know, we always have to remember when you listen to my podcast, what informs my philosophy, right? And what informs my philosophy about paying people is that we are paying people for results, not time not skills, not effort.

We're paying them for actual results. Okay? So having said that, when could you pay a bonus? Why would you pay a bonus? I think a bonus, if it's not based on individual results, is a gift. And what did we learn when we were children about gifts? We give gifts with no expectation in return. We don't give a gift because we expect a thank you. We don't give a gift because we expect them to be incredibly grateful and indebted to us. We don't give a gift because we think it'll make them work harder, right? We don't do that. And I wish I could say the same was true. Like, we don't accept gifts with the expectation of there being more of them, right? A gift is a gift. Like, that's awesome, right? When I have been given gifts by friends and family, I'm just happy I have a gift. It doesn't set me up in my mind for, like, when's my next gift? But I think a lot of people that does happen, and I'll talk about that in a second. So if you want to give people, you know, a cash bonus for the holiday just because you want to give it, you want to give them a gift card, you want to give them a, you know, a day off, you want to, whatever, do it because it feels amazing to you to give it, not because you're giving it with some sort of expectation, because that's when this thing gets weird. Okay? Now, if you're one of those people who sort of does give gifts, and I've coached a lot of these clients every year, Everybody gets a $500 envelope, right? Or, you know, a gift card or whatever. And then what happens to the client that I'm coaching is then they get mad when people expect the gift. Like, when are we going to get our bonus? When are we going to get our gift card? Because, you know, people ask, right? Like, are we gonna, hey, I'm just trying to plan my Christmas shopping. Are we gonna get that gift card? Right? Like, it's funny what people do, but they do. And then I watch my clients spin out, they get completely unglued because people are now, quote, unquote, acting entitled to a gift. But of course they are. You keep giving them one with no strings attached, right? So just know that when you do do that.

It can happen in an organization where people start to expect it. And I just want to make sure that if you love giving gifts, you love giving gifts, because you love giving gifts, and you don't really Care if they expect it. You don't really care if they wait for it. You just love the feeling of getting the gift and giving it to them. Okay, Now I want to offer you another perspective. I want to offer you the perspective again that where bonus is really rooted in and based on achieving exceptional results above and beyond extra. So let's say you have an employee in your business who makes $70,000 a year and you want to give them a $3,000 bonus, right? And you are basing it on their individual results. So maybe they get a 3,000, someone else gets 1,000, someone else is getting 10,000. Whatever.

One of the things that happens when you pay a bonus is you're paying a bonus based on past performance. Okay? So I'm going to give you this 10 grand based on what you already did. So immediately my business is out that 10 grand. Now, some CPAs, we talked about this on call yesterday. Some CPAs like you to do that because they want the cash off your books, right? But you want to remember that when you pay off that 10, hey, it's cash out because right into the employee's bank account. And also remember that in most locations, in most states here in the US bonus is taxed differently and it's taxed higher, sometimes as much as 50%. So you pay them 5, they get 2,500, okay? So then you're out the cash. We go into a new year and their performance tanks. So you've paid them a bonus based on what they did the last year, but now they're not sustaining their results. Let's just pretend that happens. Or we say to them, at the end of the year, you earned an extra $2,000 in your comp.

And I'm going to add that $2,000 into your BI monthly paycheck next year. So now what I'm going to do is I'm going to actually increase.

Your quality of compensation monthly instead of just giving you a chunk of change. Because what do people do with a bonus? Most people, they spend it. They don't think of it as, oh, this is cool, I have $5,000 I can now allocate for my compensation. They don't do that. They spend it. You know they do. So when you integrate it into their compensation, you've now increased their monthly wage.

And you've bumped them from making 70k to 72k or 75k or 80k. And that changes the way people think about their job. When they're making more money.

It'S a whole other game. And I Think it's much better because then as the boss, as the person who is managing your resources, assuming you've been through the how to CEO program, you've developed your leadership skill, you've developed management practices, you have clear accountability structures, then now they're making more money. Sure, you've given a $5,000 raise, but you're still holding them accountable to their performance. So if for some reason they just completely go off the rails, three months, six months in, they may not continue with your business and you're not out the full five grand. Okay. But ultimately people want to be paid fairly for their exchange of effort and time, et cetera. We know that we hire people for results. Employees think they're getting paid for their time and their experience. So I think it's better, especially as a female entrepreneur in the world that we do today, are in today to be well known for, recognized for paying well.

Offering higher than average compensation packages.

Better salaries, it makes you more competitive, it makes you more attractive. I actually think as long as you pay more, you don't even have to worry so much about all the other bells and whistles unless you want them.

So these are the ways to think about bonus, right? Like a lot of people are just like, should I pay a bonus? Like I don't know, why don't we talk about what your philosophy is about how you want to pay people. That's much more important.

That's going to inform whether or not you want to give somebody a gift card. You follow me? So give gifts if you love to, not because you're expecting something. Bonuses I think should be based on individual results. And my recommendation would be not a big old cash lump, but add it to their overall comp.

And the last thing that I think is also important to talk about is there's a lot of people who ask about different kinds of like SEP and, and profit sharing and all the different things that people do. And again, I think you can do all of those things. I think there's tax benefits, you need to work with your cpa. I think if you're newer business, I would be careful before you start making all these commitments of what you're going to pay people. You know, a lot of my clients get way over their skis and revenue their first few years because they have a really important, really powerful product or service and everybody wants to buy it and they start giving away these great, or providing these great profit sharing plans or SEP IRAs or all the things that we do and then the revenue levels out.

And that Gravy train sort of slows down and you realize, like, holy hell, I've been doling out cash and I can't do it this year. I would much rather see businesses accumulate some maturity and some consistency in their revenue before they start making these big promises to team members about what it would look like.

And again, you can take one of two philosophies. My philosophy is, look, I'm going to pay you well, and I want to pay you enough so that I think you could invest your own money and you can get your own benefits. I worked in a company for years. I was trapped because I thought I had to have benefits through the company. I was trapped by that belief. It kept me stuck in a corporate job much longer than I should have been.

And now, and I'll never forget was my girlfriend Brooke, who said to me, this was years ago, you guys, this was 15 years ago. And she said to me, I said, well, what about health benefits? I provide all the benefits for my family. And she just looked at me across the table. We were sitting in a restaurant here in my town, and she looked at me and she said, just make enough fricking money that it doesn't matter.

And it never occurred to me.

And I'll be honest with you, I want to hire people who want that kind of independence in their life. Right. I do think you providing all these things, while I get it, there's this belief that employers are supposed to, like, provide everything. I think employers are supposed to provide a competitive living or a more so wage for the effort, not all the other stuff. That, again, is my philosophy. You don't have to believe it, but I would invite you to consider.

What someone could do with the extra two grand that you are spending on all these other things. Maybe they could do better with it. Maybe they could do something they would like to do with it. It isn't your responsibility.

To make sure they're investing money for their retirement. It's theirs.

Anyway, that's my philosophy. So anyway, lots of things about paying people, and I know it can get confusing. And then you go to these events with other entrepreneurs and you hear all the things people are doing and they all sound very sexy and appealing and, ooh, maybe I should try that. That sounds really good. I didn't know that existed. I'll look into that. Right? All of is great. Consider all of it. But what matters most is it's all rooted in your own philosophy. And then you put that in place. That's your business model, because it's the one you believe in.

And my clock is chiming. Can you hear that? That's kind of cool. Anyway, I hope you have had a lovely time during this holiday season, and I think this podcast will drop right as we go into the new year. I will be recording a special podcast for the new year and I'm super excited and honored that all of you have been tuning in. And we will be opening a new how to CEO group starts on January 25th. If you are not on the waitlist, go to howtoceoregister.com and put your name on there so you get all the information. Another announcement is we will be slowly but surely pulling our profile information. We won't be as active on Instagram and Facebook. If you're not connected with me on LinkedIn, I would encourage you to. And if you're not on the wait list or, excuse me, on our mailing list, I would encourage you to get on there so that you get our updates and you get our information. And I'm going to be reactivating a blog for female entrepreneurs, something that I've done and sort of put made dormant. And I love writing and I love sharing things with my potential clients and other women out there. So I'd love for you to be on our list so you get the updates to the blog as well. So I've shared just a lot of information in sequence with you, but next year is going to be really, really fun, really exciting. I've also just opened up registration for the Sage CEO program, which currently you only know about if you're a current client. If you're interested in the Sage CEO, you can actually go to our Instagram profile, Hris Plackiecoach. I actually put a video there that explains it, and you're more than welcome to go there and then let me know if you're interested in learning more. We'll be getting started in February. All right, everyone, thank you so much. Take care and I will talk to you soon.