“We’re just now coming to understand the impact of this past. We had some tough decisions to make at year-end, and we won’t be able to give out year end bonuses to employees. How do I get my employees to understand that while it feels personal, decisions were made to protect the well-being of the entire company?”
Last year had scary moments for just about every company and small-business owner. While some were able to dodge bullets, other companies took direct hits. Just about every business owner I talk to admits that somewhere along the line there were at least a few sleepless nights. Many business owners felt a lot of pressure as they dealt with year-end. Employees are used to year end bonuses from previous years. Hearing that unemployment was way up didn’t have a big impact for some employees who were counting on year-end bonuses to close their personal financial gaps. Many employees felt that if they still had jobs at the end of the year, then it wasn’t a question of getting laid off, it was a question of how the profits were going to get spread around. Others were totally unprepared for the more conservative routes that owners chose to take at year-end.
The bottom line: Understanding what impacts the bottom line is crucial in any business, and helps determine if a company can afford year end bonuses for employees.
Many companies took a quadruple hit. The work they did brought in less profit than in previous years. They put more time, money and effort than usual into marketing in order to build up their future. They used up a chunk of the profits they made to pay taxes and cover higher benefits costs. And having dipped into reserves sometime during the year, owners at year-end were challenged to build reserves back up. Sound familiar? Now it’s time to help employees understand what’s going on.
Why was there less profit?
The average job size and dollar value was probably smaller, many companies spent a lot more time taking care of each individual customer, which lead to less profit per job. And sometimes companies bid lower than they were used to just to get the work to keep their equipment and people running. Building up reserve funds and ensuring that taxes are paid on time are two of the year-end’s top priorities for most business owners. Companies that came up short on reserve funds had a hard time making it through the year, and many companies that had deep cash reserves dipped into those funds during the year to keep everything running.
It can be difficult to have these conversations with employees. You have to find the balance between complete transparency and ensuring that your employees have faith that the company will continue to survive. Explain to employees that ensuring that a company has reserve funds going forward could be the difference between the company surviving, and the company closing its doors in the future. Having cash on hand between one and three months of operating expenses is a minimum, but keep your goals set at at least 6 months of cash ready for emergencies. If things go wrong, customers fall away, invoices don’t get paid, prices escalate faster than expected, the company still has funds to make it through a rough patch, payroll still gets paid and employees still have jobs.
I’ve heard employees question why the company is spending significant amounts of money on marketing and sales development. That’s the company’s future.
Out of sales and marketing will come future customers who will pay for salaries and bonuses in coming years. It’s important to explain to employees that securing the company’s future is a necessary discipline. Offering a smaller bonus, or possibly no bonus at all, and diverting the funds to finding future markets, means the company will be in business one to five years from now. The alternative, paying out bonuses to employees now, and letting the future play itself out later, could mean that down the road the company falls apart, everyone gets laid off and no one collects a salary, let alone a bonus. It’s also important to share with employees that costs are continuing to go up. Health care will cost more this year, as will taxes and other insurances. Ensuring the company has funds on hand to deal with increased costs and potentially lower margins is essential.
Look at who’s in agreement with the decision to protect the company as a whole. Recognize your long-term, savvy players as the ones who get that being financially conservative now means that the company will likely have a stronger future next year. Think about boosting efforts that focus on fueling growth of the company’s most profitable, growth-oriented accounts. Consider bonus programs that reward people for bringing in new accounts and selling what’s the most profitable. Make this a time to challenge the assumption that just staying in a job through year-end justifies a bonus, by switching to compensation plans that drive the behaviors that lead to the company’s long-term growth.
Looking for a good book? Try “The Compensation Handbook” by Lance Berger and Dorothy Berger.
