The Holiday Bonus

Since it is about that time of year that people receive their annual Holiday bonuses, I thought I would delve a little further into the wonderful world of bonuses!

There are several types of employee bonuses out there, one of which is the Holiday bonus. These bonuses are described in detail in this article and I have included a brief synopsis from this article below.

Common bonuses include:

-Profit Sharing

“A company sets aside a predetermined amount, usually between 2.5 and 7.5 percent of payroll but sometimes as high as 15 percent, as a bonus on top of base salary. Such bonuses depend on company profits, either the entire company's profitability or from a given line of business.”

-Gain Sharing

“This type of bonus program is most common in manufacturing plants and is designed to reward productivity and improved product quality. Gain sharing programs pay out bonuses for statistical improvements in production and quality on a quarterly or sometimes monthly basis, providing a sense of excitement for participants.”


-Spot Bonus Awards

"Spot bonus awards are typically $50 and up and can be made by your immediate supervisor and any higher-level person or peer in your company. You can get these for just being extra helpful."

-Non cash bonus

This is a bonus in the form of a “recognition”, such as “employee of the month”, being recognized at a large company event, a trophy like award, a special parking spot, or an extra day off of work.

-Sign on bonus

"Given to new employees who have just joined the company, this award serves two purposes: to establish goodwill and to buy out any compensation "left on the table" from a previous employer."

-Task bonus

"Task bonuses are given to a team of employees for achieving a milestone or for completing an important project."

-Referral bonus

"Many employers offer referral bonuses to employees for recommending friends and acquaintances in hot job markets, as a alternative to hiring recruiters."

-Retention bonus

"Retention bonuses are given to employees in unusual circumstances, such as a merger or acquisition, or when an important project needs to be completed."

-Holiday bonus

"Holiday bonuses range from small gifts (for example, cash or the ubiquitous holiday turkey) to one month's salary."

-Sales Commission

"Sales commissions are awarded to salespeople for selling. Usually these awards are paid out as a percentage of sales volume."

Bonuses are not only beneficial to the employee, but the employer as well. Profit sharing helps employees see how what they do effects the company as a whole, and help the employee to be more invested in the company’s performance. Gain sharing helps employees that work in production companies be united and more committed to making or exceeding production goals. Spot bonuses and non cash bonuses help employees feel more appreciated in their jobs, creating well being and making employees more likely to go above and beyond their call of duty. Sign on bonuses make employees feel obligated to succeed in their job right off the bat, in an attempt to “earn” money they have already received. Referral and retention bonuses lead to less employee turnover, due to the hiring of more dependable people (employees are less likely to “put their name” with someone who they already know is untrustworthy).

Bonuses are also beneficial to the employer when they are used as part of an employee raise. For example if the employer gives the employee a 1% bonus and a 4% raise instead of a 5% raise, next year’s raise and bonus are based on a smaller salary.

Option A: 4% raise w/ 1% bonus
Salary: $40,000
Bonus: $40,000 x 1% = $400
4% raise: $40,000 x 104% = $41,600

In year one, the employee will receive $42,000.

Option B: 5% raise, no bonus
Salary: $40,000
5% raise: $40,000 x 105% = $42,000

In year one, employee will receive $42,000.

But after a couple years, the difference grows to makes quite a difference. Ahhh the power of compounding!

Continuing the example above, with an employee that makes $40,000 a year, and receives a raise via Option A or Option B, this chart shows his salary difference over 15 years.

Wow! And the difference is even larger if the base pay started off higher, or the raise amount increased!

Since I don’t receive an official cash Holiday bonus, I thought writing this post would make me bitter, but it actually has been a help. Maybe my boss is incorporating my bonus into my raise, and the power of compounding is benefiting me in the long run. And my company does have a nice holiday dinner for us that could be considered a bonus. Also, once a year I am sent to Europe for work purposes, and that can definitely be considered a bonus.

If you do get a bonus, put it to good use! No Credit Needed blog has a good article on how to use your bonus. And if you don’t receive a cash Holiday bonus, don’t be bitter… you might be getting a bonus in some other way that you didn’t recognize as a bonus!

Happy holidays!