Dear Dave
Perhaps you could share some insight on an internal debate we are having about how best to handle bonus distributions. Our historical practice has been to pay bonuses once each year, at the end of the year. What we are discussing is whether we may generate greater benefit in the form of more ongoing interest and enthusiasm if we were to go to more frequent distributions such as twice a year or maybe even quarterly payouts.
GS KS

Dear GS
I think a number of excellent arguments could be made either way. As a generalization, my personnel choice would probably come down to making a single, larger distribution once each year.

By making one payout, the distribution is going to be larger than if you were to spread the amount over two (or four) smaller bonuses and therefore might have (?) a greater psychological oomph to it than several smaller checks. On the other hand, more frequent checks present more opportunities throughout the year to reinforce the behaviors necessary to ensure continuing success.

If you stick with a single distribution, you can accomplish almost the same reinforcement by providing monthly or quarterly progress reports sharing how well the company is doing relative to the factors that go into determining what the ultimate bonus might be by the end of the year and still make the one larger payout at the end of the year.
If your firm is subject to up and down swings in its performance over the course of a bonus year, you would obviously need to be careful about not over distributing in one or two periods and then incurring a loss in a remaining period. I have come across firms who accumulate and payout bonuses from period to period, but hold back a reserve from each periodic distribution to guard against the unanticipated future bad period. At the end of the year, the remaining accumulation being held in reserve is distributed as part of the final payout.

Whether you stick with a one-time payout or move to more frequent distributions for your bonus program, don’t overlook the enormous power of also making a number of small value, token-like gestures in recognition of an individual’s performance throughout the year whenever you notice pleasing performance you would like to encourage. Management studies have shown for decades that we all have deeply rooted needs to feel that our contributions and accomplishments are being recognized and appreciated by those we work for. Recognition can take many forms and should not be limited to just year end bonuses. Complement your main-line bonus program by getting in the habit of spontaneously making little gestures signaling you see and appreciate what individuals are doing. A sleeve of golf balls here, a gift certificate there, or perhaps an afternoon off with pay, are all small ways to let people know you know what they are contributing. These tokens used for recognition need not cost much on a dollars basis but, pound for pound, symbolic recognition can be worth its weight in gold when it comes to generating goodwill with your staff.

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