Q&A talks about holiday bonuses with James E. (Jim) Moniz, the president and CEO of Northeast VisionLink, a Braintree-based firm specializing in executive compensation.
Q: You’re against the concept of holiday bonuses and year-end bonuses. Why is that?
A: We’ve had significant experience reviewing the effectiveness of compensation and reward strategies. Our studies’ experience and research have shown that a year-end bonus does little to focus a recipient long-term on the goals of the corporation. Studies have shown that an employee focuses in on the bonus two weeks prior and one week after receiving it. An effective reward strategy would be to have someone focus on their role in the growth of the company 52 weeks out of the year.
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Q: Why go with bonuses in the first place? Why not just raise compensation or do workers feel better with rewards?
A: Compensation is what we get for doing our jobs. Rewards, including bonuses are what we get for helping the company achieve specific and strategic goals. There is a difference between guaranteed compensation such as salary and variable compensation, which should be the outcome of rewards.
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Q: You say business owners and CEOs need to recognize there exist more creative vehicles that can serve as year-long incentive programs. What are some creative vehicles not currently in wide use that could be implemented?
A: There are many potential components of an effective incentive program, including bonuses, term-focused plans such as deferred compensation, deferral plans, phantom stock and company stock options. An interesting example would be a performance unit program (PUP) that recognizes immediately a specific results or completion of a project. A certificate for a performance plan is able to be distributed immediately. The value of the plan will grow in a company stock-style program over time. Commonly used to motivate a group of individuals toward the two- to five-year goals of an employer, performance plans are intended to reward employees for their contributions in achieving an organization’s goals. A PUP may be designed in a number of ways and could include several characteristics, including allotting a certain number of PUPs to selected employees; granting units based on an individual’s job performance over the course of a year; payment at the end of the plan term is based on the appreciation in the PUP over the term; typically, a participant will not receive a payment unless he/she remains with the firm for the entire term.
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Q: As your research points out, studies indicate that the impact of a holiday bonus on employee focus is typically two weeks prior to and one week after receipt, with further statistics pointing to the increase in resignations shortly after the check is cashed. Can anything be done to prevent those departures?
A: Part of a rewards strategy can have a long-term component. In some situations, vesting can be part of the reward strategy. If an employee were to leave, they may be leaving some of the rewards on the table. An incentive and rewards program with a vesting schedule acts as “Golden Handcuffs” to retain employees.
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Q: The framework of an incentive program becomes compromised when the company looks at “compensation” as an expense, not as an investment. How does a company not see this solely as an expense?
A: This is the most important area of creating an effective incentive program. Let’s assume for a second that the company is worth $5 million. With normal growth (or what I refer to as organic growth) the company might be worth $10 million at the end of 10 years. If this growth would happen with or without incentives, this becomes our baseline. Now let’s assume that by focusing our employees, at the end of 10 years the value of the company is $25 million. If a rewards program is in place, that additional $15 million in growth effectively is part of the return on investment for compensation and rewards.
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Q: Your advice is to build a compensation philosophy on a proper and lasting foundation. What are some examples of improper foundations?
A: An improper foundation is one where there is little communication from business leadership as to the goals of the company. Often times, this is expressed in a percentage increase. Employees have little idea what their role is in the success or failure of the company. They have no idea how to measure success, or the results of their hard work. An A+ rewards program with poor leadership and communication will significantly underperform even a C- compensation and rewards package that has good communication and focus from leadership.
