Small business owners often face a dilemma when thinking about giving a mid year bonus to their team members. A lot of entrepreneurs and business owners don’t have good standards for giving bonuses to their teams in the first place. This is even more true with small businesses and those that hire virtual teams. There just isn’t any system in place for incentivizing contract workers and freelancers. This is particularly true when thinking about giving more than a token holiday season bonus.
In this article, we’ll talk about the pros and cons of giving versus not giving a mid year bonus to virtual team members.
Mid Year Bonus Versus End of Year Bonus
End of year bonuses are popular in most work environments. This is mainly the result of the tradition of giving Christmas gifts. Business owners would hand out special gifts to the people working for them, such as hams and wines for the Christmas feast. Over the years, this “bonus” became cash gifts. In some countries, the end of year bonus has even become part of the coded regulations for employment, required by law.
The mid year bonus is, by comparison, relatively new. As with the end of year bonus, this one is required by some governments. In these cases, the argument is that people should not have to wait twelve months to know whether or not they will receive this “gift” to thank them for their contributions to the company.
Bonuses may not be required by law in your country. They may not even be recognized as a common practice for virtual teams. We believe, however, that the reasons behind giving them are solid. We give special attention to the fact that freelance hires do not receive any of the other benefits required by law for employees, like health care, retirement, sick pay, or paid vacation leave. There are some caveats to giving bonuses, of course, and we encourage you to weigh the pros and cons. Your decision regarding giving bonuses can greatly affect team loyalty and productivity as well as business profitability.
Pros of a Mid Year Bonus
The middle of the year is a great time to think about giving added incentives to your team members. It’s summer time, a traditional time for taking a break from work and evaluating the previous months. Below are a few reasons why you should give a mid year bonus to your team members.
(1) Recognizes Hard Work
A mid year bonus is a powerful sign of appreciation. It can be a great way to show your virtual team how much you value their efforts. You may already be giving them an end of year bonus to show your appreciation. But twelve months is a long time for anyone to wait to receive tangible proof that their performance is valued.
A single bonus for the year may seem to have the benefit of tying down hires for the whole year. The theory is that they would stick with the company and work hard all year in anticipation of a large incentive at the end of that year. In reality, it can be problematic to wait so long to recognize hard work.
First, people can lose their motivation over such a long period. This is particularly true in the gig economy. Freelancers can take hold of global opportunities for high-paying work without even having to think about leaving the comfort of their homes. Many of these opportunities exist, and are available at the click of a mouse button.
Second, the people who work under you can also develop feelings of resentment if they are not appreciated for all that they’re doing for your company. This resentment can also be tied directly to the bonus being withheld until the end of the year. This is especially true if they have financial obligations during the year that they’re struggling to meet. It may not make sense since they are paid for their work, but people can easily become less productive when underappreciated and struggling. It is in your best interests as the business owner to help them be happier and more productive. A mid year bonus encourages them and eases the stress of their responsibilities.
When you recognize each team member for the first half year of hard work, you give them a reason to stay with you for the second half of the year. A mid year bonus shows them in no uncertain terms that they are doing well. This means that they don’t have to worry about whether or not they will be properly rewarded for their efforts. They don’t have to invest a whole year of their time and talent spent in uncertainty. They will have this important financial milestone that indicates how well they have performed.
(2) Provides Added Motivation
The best virtual teams are composed of people who find personal satisfaction in their work. They do not work only for the sake of a paycheck. Still, money is an important motivator. We all need it to live well in this world. Your A-players may prioritize intellectual stimulation, contributing to a greater whole, or having a sense of accomplishment. These values don’t pay the bills or feed the kids, though. A regular mid year bonus will encourage your top performing virtual hires to perform better and better. In turn, this reward can foster greater loyalty because you care about them. This is much better than ruling with the stick and forcing them to serve you before they can get their bonus.
Off of that, a mid year bonus is also a great way to motivate underperformers. By not receiving the bonus or receiving a small amount, underperforming team members can be motivated to aspire to greatness. We all want to have more comfort in life. The promise of a reward that is tied directly to performance is a powerful motivator.
In the same vein, a mid year bonus that is tied to performance is also necessarily tied to a performance review. This means that you have the opportunity to review and reward each team member twice a year instead of just once. This is a great opportunity to encourage everyone to adjust their performance mid year. Two is better than one, and this review will help you manage mid year slumps. Your team will appreciate it as well since they will be given the chance to improve, which will increase their chances of getting a bigger bonus next time around.
(3) Supplies Mid Year Funds
A mid year bonus is a strong incentive. As mentioned above, the summer time is a traditional period of rest and reflection. It is also a significant time in our life cycle.
Yes, business owners and virtual hires are no longer in school, governed by the school year schedule. Still, spending at least twelve of our formative years in such an environment leaves its mark. In the summer, we expect to feel that sense of accomplishment at finishing a level. We also expect a period of rest. The weather is great, which is why schools let out for summer and not a different season. We all want to spend some time enjoying the world we live in and the people we love.
You and your virtual team may not necessarily take long vacations for yourselves mid year. This period still holds significance, though. Many business owners and virtual workers are parents who want to spend quality time with their children. They will soon be sending their children back to school, and this time is important. Even in the absence of children, some time away from work is important for refreshment. It helps all of us to recharge and come back with renewed energy and passion to accomplish great things.
Going back to school also means additional expenses that parents have to pay upfront. A mid year bonus can really come in handy when the tuition payment is due and fresh school supplies need to be purchased. Giving this bonus mid year shows that you recognize their needs. It therefore gives you the ability to motivate your virtual team through the summer and into the end of the year.
For you as the business owner, a mid year bonus also means the ability to split up the payments. Payments to hires are usually a big part of any company’s costs. Giving out big bonuses at the end of the year can be a financial burden to the company. A semi-annual bonus cycle is a lot easier to manage for your business budget. A mid year bonus can also help you to see a more realistic picture of your hiring expenses before the end of the year. It then becomes easier to make adjustments to be able to meet operating expenses. Waiting until the end of the year to gauge profitability can be very damaging to the company. A mid year bonus can be a vital reminder to you to hold a business review and planning session.
Cons of a Mid Year Bonus
Adding a mid year bonus to your budget can be a burden. Setting up the bonus structure takes a lot of time and thought, as well as management. Implementing a half-baked mid year bonus can have dire consequences.
(1) Encourages Low Productivity
In terms of underperforming hires, a mid year bonus may not be the best idea. They have not contributed to a great first half of the year for the business. You may be thinking that there is no reason to give these underperformers any bonus at all. You are not rewarding poor performance, after all. Doing this would just encourage them to continue giving just enough to keep their jobs.
Improperly structured and distributed bonuses can have very bad consequences for your business. If you are not very clear about using them, for example, as a motivating factor, then you will indeed encourage underperformance. Any hire who does not understand that better performance leads to bigger bonuses will not be motivated to do better.
As a performance incentive, a mid year bonus must be properly tracked. If you do not have strong key performance indicators, this bonus structure will not work. You will just end up handing out cash and not seeing any improvement in work output. Hires will also tend to view the bonus as part of their pay because they will not recognize it as a reward for performance or appreciation for work well done.
(2) Poses a Danger to Finances
Offering a mid year bonus to each person on your virtual team can be a heavy financial burden. It can put you in the potential position where you are giving too much cash out in the form of bonuses. If you are not taking stock of bonuses as a yearly expense, they can become enough to put you out of business.
The mid year bonus is supposed to be a portion of the end of year bonus. Businesses can be careless about not structuring it that way and making incorrect computations as a result. These businesses often end up paying out more than it’s worth in terms of performance benefits.
It’s now time for you to evaluate the pros and cons and decide if a mid year bonus is something you want to implement. You have specific conditions that must be met before you can make this kind of structure work for your benefit. The limitations must also be considered. Ultimately, you must weigh it all out.
From our experience, the wise choice is to provide this mid year bonus to virtual teams. Considering the above pros, it is a very handy tool of appreciation and motivation. Structured and used properly, it is powerful in encouraging increased performance over the long term.
If you do decide to implement a mid year bonus, we recommend that you sit down and carefully draw up your metrics and bonus levels. Then, roll out the bonus slowly so that you can work out any kinks and track performance closely. You will need to make some adjustments, but it’s always easier to adjust up rather than down. Take your time with it so that you can formulate a bonus structure that brings you all the benefits while avoiding potential ill effects.
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