Dec 12

GORDY BUNCH: Year-End Annual Bonus Do’s and Don’ts

By Gordy Bunch,

As we approach the end of 2016, many business owners and managers will be facing holiday or annual bonus decisions. This time of year is particularly stressful for all involved as many employees and their families await the determination of the bonus amounts to make decisions. Think Christmas Vacation where the Griswold family had planned to put in a new swimming pool with Clark’s annual bonus only to find out he received a one-year membership to the Jelly of the Month Club instead of his usual cash bonus. Unfortunately for Clark, he had already spent the money expecting it to come in as it had year after year.

Business owners and managers also deal with anxiety over the bonuses while dealing with their own family stresses, annual profitability goals, and the desire to be fair to all concerned. I deal with these issues every year trying to make sure I take care of those that take care of the business throughout the year. Here is my own checklist of do’s and don’ts for deliberation when it comes to annual and holiday bonus planning.

  1. Do not make emotional decisions based on the last interaction you had with an employee, but do keep track of their positive and negative contributions throughout the year to ensure a balanced and informed assessment when allocating bonuses.
  2. Do not over promise compensation but do communicate ranges of potential bonuses with specific achievements identified, so everyone knows what is needed to earn a bonus. This is critical and should be included in annual reviews of employees who may receive additional annual compensation.
  3. Do not compensate every employee equally. Establish written production bonus plans so those who contribute the most are compensated based on performance. Nothing will run off top-performing employees faster than handing out a one-size-fits-all bonus to them and to those who perform at a much lower level.
  4. Do not reward under-performing employees but do review why they were not considered for an annual bonus. This should not come as a surprise as it should be a review based on ongoing performance communications that have occurred during the year.
  5. Do not forget to allocate funding for bonuses in your annual budgeting, and account for them by setting aside accruals over the full calendar year. This enables business owners to be prepared and have bonus money on hand, making the distribution more efficient and far less financially stressful.
  6. Do not bonus your company into a loss as no one wins if the company is struggling or goes out of business. It is important to maintain your industry’s standard profitability margins to protect the company’s value and ongoing operations.

Unnecessary holiday stress can be avoided with proper communication throughout the year. A bonus plan that clearly identifies what is required to achieve one, and frequent performance reviews should have you and your employees entering the holiday season with one less thing to stress about.

I hope the “Bunch on Business” articles contributed this year have been helpful, and I want to wish you and yours a very Merry Christmas and a New Year filled with success.


Richard “Gordy” Bunch is the EY Entrepreneur of the Year for the Gulf Coast for Products and Services. He is the founder, president, and CEO of The Woodlands Financial Group based in The Woodlands, Texas. Submit suggested topics for future business columns to him at, or through the editor of this publication.

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