Bonuses act as motivators, rewards and nice ways to thank employees for helping you build your company. Even if you can afford only small bonuses, they let employees know you appreciate their work. Include these ideas in your approach:

1. Bonuses should be linked to performance of the team, unit or individual against specific and measurable goals that are attainable
2. Year-end is not the only time to give bonuses. Consider offering periodic rewards throughout the year for a job well done.
3. Even a small bonus can mean a lot to someone, so don't rule out bonuses just because cash is short.
4. When bonuses are given, make it clear that the payments are "extra" and may not always be available.

Action Steps
The best contacts and resources to help you get it done

Make bonuses work for your business

Base bonuses on clear goals. Make the goals specific for the worker and beneficial to your company.

I recommend: American Express offers advice on why you should consider giving bonuses, how to be fair with bonuses, how much to pay and other nuances. The small business section of Salary.com can help you establish the right pay levels for all of the jobs at your business.

Keep the books on bonuses for tax purposes

Your accountant or bookkeeper will need to know whether the bonuses were discretionary – not required – or non-discretionary, or linked with a contract or promise. Keep good records of what you give and its value.

I recommend: The American Institute of Professional Bookkeepers offers guidelines for which bonuses are taxable and which are not.

Consultant compensation experts

If bonus and other compensation questions have you stumped, consider a compensation consultant.

I recommend: SalaryExpert.com has a wide range of helpful resources, including links to compensation consultants, job analysis software and resources, executive compensation surveys and more.

A variation: hiring bonuses

Studies indicate that half of all technology and life sciences companies – even small businesses – use a hiring bonus program to attract hard-to-find job candidates.

I recommend: Need to decide which types of employees to offer hiring bonus, typical amounts and how the bonuses are paid? Culpepper & Associates conducts regular surveys on salaries and bonuses.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Bonuses should be equal among peer groups.
• •  Consider giving bonuses at any time of year for jobs well done.
• •  Reward behind-the-scenes staff, not only those who led the project or closed the deal.
• •  Be wary of cutting large, longtime incentive bonuses; employees who have come to depend on them will be angry and may even sue to get them back.
• •  To wind down non-performance-linked bonuses, tell employees that the money they would receive at the end of the year will go into their paychecks as a salary increase spread over the entire year.