It's time to hand out bonuses; but wait, in this environment?

Many companies are in a predicament right now. Their financial performance during the first half of the year was fairly strong and, as such, their full-year numbers are good enough to provide bonuses to key staff members who performed well.

Many companies are in a predicament right now. Their financial performance during the first half of the year was fairly strong and, as such, their full-year numbers are good enough to provide bonuses to key staff members who performed well.

But the second half of the year, especially the fourth quarter, has been terrible, with signs that things will only get worse in 2009. In an environment of staff and budget cuts, how can a company also pay out bonuses?

This dilemma raises two questions, one financial, and the other moral. First, is it financially prudent to pay out bonuses, even if “earned” in 2008, when 2009 has the potential to be a financial disaster? Second, is it morally right to pay out bonuses when your company is laying off large numbers of people due to a need for cost reduction? Let's tackle these one at a time.

The current climate provides an opportunity. Employees understand we're in difficult times. They expect, indeed want, their employers to intelligently adapt to marketplace realities. I know several companies who would like to pay out bonuses, but they're scared about next year. They want, in effect, a “rainy-day fund” so if next year is horrible, they're properly prepared.

My suggestion: Think outside the box. Here's one idea. If key employees are eligible for a cash bonus payment, make half the payment now and tell them the other half is going into an escrow account. If the company makes its business plan for 2009, the money placed in that account is theirs, with accrued interest. If the business suffers dramatically, then the “rainy-day fund,” which will come from the collective non-distributed bonus pool, will make it possible to get through 2009 without having to lay off more people than absolutely necessary.

The message: We want to be fair, we want to be generous, but we also want to do what's right.

Is such a scenario right for your organization? Perhaps. If not, come up with your own approaches. One note: Legal issues often come into play regarding compensation, so be sure to engage your general counsel.

The moral question about bonus payments amid layoffs is a tough call. If this economic downturn is an opportunity for you to weed out under-performers, then your best people shouldn't suffer by surrendering bonuses.

But make no mistake: The layoffs will inevitably be characterized as economically based, not performance related. So, if you are going to be paying bonuses, make sure those who are being let go are given respectable severance packages.

If the job cuts you make are pure cost reductions and well-qualified people are losing their jobs, then I think this is a year for no bonuses. An accrued bonus pool, saved and applied toward straight salaries, may well help a good number of people keep their jobs. I'd like to believe most of us would gladly surrender an annual bonus to help make that a reality.

Bob Feldman is CEO of Feldman & Partners, a communications management consulting firm. He can be reached at bob@feldmanandpartners.com. Bob's monthly column focuses on management of the corporate comms function.

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