Some companies have specific bonus plans -- maybe for the whole company or maybe just for people in sales or management positions. Most smaller business, however, lack any sort of formal arrangement. That puts the matter in the hand of the owner, and sometimes the manager, as to whether to pay out anything, as well as whom should be rewarded.

It's not easy to hand over what's ostensibly your money if you own a business. You took the risk in opening and in many ways are entitled to the rewards. Still, bonuses can help you retain employees, and they can motivate your staff to make you even more money in the new year.

A man in a suit hands over cash.

Holiday bonuses don't have to be cash, but employees won't argue if they are. Image source: Getty Images.

What should you consider?

First, you need to figure out if you had a profitable year. That can be a challenge, as some businesses -- retail specifically -- depend upon fourth-quarter sales. If you didn't make money, the only bonuses you should consider are for salespeople who performed well individually and whose loss might hurt your business.

If you made money -- first, congratulations. Then you have to decide who's in the bonus pool and how much to give. In general, you want to give bonuses based on how each person impacted your business. That's not just about people who generate sales. An excellent customer service person or a cashier who goes above and beyond should be recognized as well.

Should you decide to only give bonuses to some people and not to other, try to have criteria for it. For example, you might only give bonuses to salaried employees, or those who achieved stellar annual reviews.

In other cases, companies will give bonuses of varying levels to all workers. When I served as general manager of a large toy store, the owner handed out cash-filled envelopes to every employee. Most hourly workers got $50 to $250, depending on how much they worked throughout the year, with those who worked extra hard getting a little more. Managers and salaried employees got a little more, and as general manager, I got somewhere between two weeks' and a month's salary, a generous amount based on our level of profitability.

It's going to get out

Managers might keep their bonuses to themselves, and it's generally accepted that salespeople are rewarded for performance. In a situation where bonuses are doled out more widely, assume that your employees are going to talk. There's nothing you can do about that, but expect that some people who get less may be disappointed.

Bonuses should reflect the health of the business. If you had a great year, it makes sense to share with your employees. There are, however, extenuating circumstances. If your great year followed a number of bad ones, maybe you need to direct your profits toward paying down debt.

If that's the case, be transparent. Thank your employees and tell them how their work has made the company stronger and gotten it out of debt. You may even want to make it clear that if a similar performance happens next year, some of that profit will go to them.

Bonuses are a delicate situation. They can be motivating or inspiring, but they can also lead to resentment. Make sure you hand them out -- or don't -- with a clear rationale behind your choices. You may never choose to share your logic, but it's important to make sure you're fair and go by merit, not by your personal relationship with each employee.

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