Anatomy of an Employee Bonus

Regardless of your politics around our nation's fiscal problems, we can probably agree that January and February are financially sobering for many of us. The holiday parties are over and the bills are coming due. 

In late January, just as credit card bills started to recover from end-of-year holiday spending, the FICA tax holiday expired, and paychecks contracted accordingly. The timing wasn't great for American workers, as salaries have plateaued over the past few years, only increasing 2.8% on average in 2012. They are projected to increase just 3% in 2013.

Financial conditions favorable
But in Miami, Baptist Health South Florida executives saw an opportunity to reach out to employees and show support. Baptist Health executives say they are sensitive to their employees' financial pressures, especially after reviewing Baptist's "better-than-expected" performance at the end of 2012.

So the nonprofit health system rewarded each of its approximately 15,000 employees in non-leadership positions with a $1,000 bonus. Baptist's HR department says it knew this change would have "a significant impact on the disposable income of the employees, especially the lowest-compensated staff."

Corey Heller, corporate VP/chief human resources officer at Baptist Health says this bonus emphasized its pay-for-performance philosophy. Called "The Valentine's Day bonus" in the announcement, it was a strategic effort at employee appreciation.

"There were a number of things we wanted to recognize," says Heller,  "The change in the FICA tax rate was certainly something we had no control over, but we had an obligation and a responsibility to do what we can to help minimize the impact on our employees."

Potential for long-term payoff
The spot bonuses cost Baptist Health more than $13 million, but could have a long-term payoff. According to the American Society for Healthcare Human Resources Administration, reducing turnover by 1% can save healthcare organizations $1 million per year.

The cost of turnover is roughly 1.5 times the salary of exempt healthcare employees and .5 times the salary of non-exempt healthcare employees. So promoting job satisfaction makes sound financial sense.

"It used to be you went to a place, you stayed there for life, and the organization took care of you for your whole career. Now we know people change jobs a lot more frequently, and there's been talk about the erosion of that social contract." says Steven Slutsky, a senior consultant in PricewaterhouseCoopers' Human Resource Services Practice.

"Something like a spot bonus, when given for a good reason, tells people, 'you know what? This organization does care about me and maybe I should consider whether this is a place I do want to make my career, or whether I should give my organization the benefit of the doubt when someone else is calling.' But the key is you have to balance that in a way that won't offset the financial objectives of the organization."

Bonus as employee retention tool
"If you want to keep employees motivated and focused, and you don't want them to start looking to jump somewhere else just for a couple of dollars, you might say 'what can I do to make this stop and can I do something outside my normal merit increase or compensation program?" says Slutsky.

The key, of course, is to maintain balance with the financial objectives of your organization.  

"We can afford to do this because we meet the benchmarks in nonprofit labor costs, but we are also cognizant of our role in financial stewardship for providing charitable care to the community," says Heller.

"This wasn't a sort of cushion before the blow. We have a commitment to employee job security and haven't had massive layoffs... so this wasn't a premonition of bad things to come. It really helped to better position our compensation strategy toward how our leaders are compensated."

An incentive, not a motivator or entitlement
Slutsky offers one caveat: "You have to be careful that when you do something special, you don't raise expectations that there's going to be consistent special items...

You want a reward as often as possible, but as soon as it becomes routine it becomes an entitlement and not only does it lose its effectiveness, but people begin to expect it and if you don't do it, people get upset. That's a balance between doing something that's personal and showing people you care and creating an entitlement mentality."

"We couldn't have done this without the financial offset to our first quarter operating income," says Heller. "I attribute our really successful first quarter to a highly motivated, highly engaged workforce. The quality of care we provide our patients continues to improve year over year, and we're extremely proud of the results we've achieved."

I've got another caveat: Money is not a cure for job dissatisfaction. To an employee with a large credit card bill, an unexpected January bonus will certainly be a financial stress reducer. But it will not negate the misery of an unmotivated worker floundering in a workplace that doesn't meet his or her needs.

One of the responsibilities of the human resource department is to create the most productive, engaging, encouraging, and supportive work environment possible. Organizations have a responsibility to empower them to do so.