Should Companies Offer Christmas Bonuses and How to Distribute Them Effectively
Some companies only reward top performers, whereas others offer a holiday bonus to everyone. This article explores which approach is most effective for your business.
According to Bureau of Labor Statistics, in 2024, 22% of private industry information workers got access to year-end bonuses. Many employees wish they had a fixed end-of-year reward. However, many employers believe that bonuses should be performance-based rather than given on a specific date. Otherwise, employees might begin to expect this payout as a given, without making any extra efforts to earn it.
Let's weigh the pros and cons to determine how Christmas bonuses should be calculated and what alternatives can be offered instead of cash rewards.
Christmas Bonuses: Types and Differences
Before we delve into various types of bonuses, let's explore differences between them. Award is a reward for achievements linked to specific performance indicators or team results. Bonus is a payment that is not dependent on an employee's performance.
In 2024, 51% of companies planned to give a Christmas bonus to employees. According to the statistics, the average Christmas bonus is $851.97.
Purpose of Christmas Bonuses
Besides motivating employees towards new achievements and promoting effectiveness, there are several important reasons for offering bonuses:
- Building loyalty to the company — when a company values its employees, they, in turn, value the company;
- Creating a positive atmosphere — monetary rewards boost morale, even among the grumpiest workers;
- Boosting team spirit — if the year has been tough and the team is exhausted, a Christmas bonus can help turn things around.
Drawbacks of Paying End-of-Year Bonuses
Every coin has two sides, and holiday bonuses can bring challenges as well. Here’s what to watch out for:
Unrealistic Employee Expectations
If a company regularly gives out holiday bonuses, employees might start seeing them as an entitlement rather than a reward for achievements. This could lead to disappointment if bonuses are reduced or eliminated.
Solution: set clear criteria for receiving bonuses and emphasize that they are not guaranteed.
Misguided Motivation
Bonuses can drive undesirable behavior in teams. For example, if the bonus size is tied to sales volume, employees might overlook customer service quality or resort to questionable tactics to meet targets.
Solution: develop evaluation criteria that consider both quantitative and qualitative factors.
Team Disconnection
If the bonus system lacks transparency and employees don’t understand the basis for rewards, it can lead to strained workplace relationships.
Solution: make evaluation criteria objective and clear for all employees to reduce dissatisfaction.
Financial Risks
Larger end-of-year bonuses can strain a company’s finances long-term, especially if unexpected expenses arise or revenue declines.
Solution: carefully budget for bonuses and set aside reserves for such payments.
Time-Intensive Calculations
Calculating bonuses can be a complex and time-consuming process, particularly when multiple factors and individual evaluations are involved.
Solution: automate bonus calculations with software like Excel or specialized payroll systems to avoid errors and streamline employee evaluations.
How to Determine the Optimal Bonus Size
The bonus amount can be set as a fixed sum, a percentage of salary, or based on annual profits. Here’s how to make it easier to decide on the right amount.
Conduct market analysis. Investigate the bonus sizes competitors in your industry offer and conduct anonymous surveys within your team to gauge colleagues’ salary expectations.
Define the bonus format. Fixed cash rewards are easier to manage and plan, while a percentage of salary or annual revenue can motivate employees to perform better.
Set clear criteria. If bonuses are tied to employee performance, establish measurable criteria for eligibility. This will prevent misunderstandings and boost motivation.
Criteria can vary based on a company's size and industry. The table below provides a guide for potential considerations.
| Criteria for Allocation | Examples of Performance Indicators |
|---|---|
| Individual Achievements | Sales volume, number of closed deals, work quality, client feedback, initiative |
| Team Results | Percentage of team goals met, participation in joint projects. |
| Long-Term Achievements | Increase in client base by a certain percentage, reduction in employee turnover. |
| Task Quality | Number of error-free tasks completed, number of tasks completed ahead of deadline. |
Alternatives to Monetary Rewards
If Christmas bonuses and awards are not feasible, consider other ways to reward employees:
- Educational opportunities — offer employees funding for professional courses, training sessions, or webinars. Investing in education benefits not only employees but the company as well. Establishing mentorship programs to enhance skills ahead of the holiday season is also a great idea.
- Non-monetary recognition — public acknowledgment of achievements, praise, and genuine gratitude can boost employee self-esteem and motivate further success;
- Extra time off — offer employees the option to extend vacations or choose a few days a year to spend with family.
- Health support — extended health coverage, gym memberships, or access to a corporate psychologist are usually well-received and help employees stay physically and mentally fit.
- Flexible work hours — allow remote work or flexible schedules to help employees balance professional tasks with personal needs;
- Team-building events — activities like team-building sessions, corporate games, travel, training, coaching sessions, and other shared experiences can boost team morale.
As Christmas approaches, many companies host a Secret Santa gift exchange for employees. It’s a fun way to strengthen team bonds, spice up the office celebration, and spread holiday cheer. The rules are simple: each participant becomes Santa for another player and prepares a surprise gift, while in return, they receive a gift from someone else. This results in a magical atmosphere and plenty of presents for everyone.
The MySanta service simplifies organizing the game. It automatically assigns participants, preventing confusion during name drawing. Each participant receives a notification about their gift recipient via email or message, so no one forgets their assigned person.
Additionally, the service allows for anonymous chats with their Santa, creating wishlists, and selecting favorite items from the gift shop. You can also manage the game, track the status of gifts, add exceptions, and remind forgetful Santas to buy a gift on time.
