Holiday Bonuses Revisited


As I’ve been writing for several years, holiday bonuses have increasingly become a thing of the past in the business world. Most companies have replaced them with various types of structured, incentive-based reward systems.

Yet an informal poll of dermatologists around the country on the RxDerm-L listserv reveals that a substantial percentage of private practitioners continue to offer their employees no-strings-attached holiday bonuses. This is somewhat understandable in the sense that, once employees come to expect a particular benefit, it is difficult to take it away. Given the uncertainties of the fluctuating economy, though, and the impending changes in the status of health care in this country, many practices may have to follow the national trend and begin tying their awards programs to performance.

Holiday bonuses have been falling out of favor in the business world because companies face increased pressure to reduce costs and so have become more focused on growth and performance. Since this is also increasingly true in the world of private practice, it makes sense for medical practices to heed this trend.

Instead of giving arbitrary, across-the-board bonuses, you may want to find ways to appropriately reward your highest-performing employees. This can be done by reserving more bonus budgets (called "variable compensation" in business lingo, as opposed to guaranteed, salaried compensation) for bonuses that are based on performance and must be re-earned each year.

First, however, you must decide what targets and goals you wish your employees to achieve during the year. Specific performance goals will vary by the type of practice: Cosmetic practices might set financial goals, such as a profit and revenue targets, while offices primarily practicing medical dermatology might measure performance according to output and quality of work.

Whatever changes you decide to make, be sure to share them with your staff from the outset. Employees must be aware of what they need to accomplish to earn a performance-based bonus.

Commonly cited guidelines for effectively rewarding employees include the following:

• Reward your employees in ways that they find rewarding. (This does not necessarily mean cash.) The reward should be matched to the achievement, so bigger achievements earn bigger rewards.

• To be effective, rewards must be given as soon as possible after a specific laudable behavior or achievement, and the employee should always be told why he or she is receiving it. A reward coming weeks or months later – say, during the holiday season – has little or no effect as a performance incentive.

So how do you know what rewards your employees will find rewarding? Ask them! In my office, their ideas have been surprisingly creative – and cheap. For example, my employees are required to park their cars each day on the other side of the hospital campus from my office building. One of them suggested that a closer parking space would be a good reward, so I obtained an extra access card for the doctors’ lot right next to my building and each month one "Employee of the Month" gets to park there. This reward – which costs me nothing – has become the most hotly contested in the office.

One of the strongest motivators is the confidence that you, the boss, have taken the time to notice a job well done and praise it publicly, in a timely manner.

Time off is another powerful motivator: Who (including you) doesn’t appreciate a bit more free time?

This is not to say, of course, that you cannot also give your employees a gift at holiday time – as long as you (and they) understand that it is a one-time gift, with no guarantees or expectations of annual repetition. Such gifts usually consist of either cash (or gift certificates/cards) or a non-cash gift such as a fruit basket or baked goods.

Keep in mind that bonuses and gifts nearly always qualify as a tax write-off for employers, but they may or may not count as taxable income for employees. As a general rule, cash bonuses tend to be taxable while non-cash awards are not, but check your state’s applicable laws to be sure.

Dr. Eastern practices dermatology and dermatologic surgery in Belleville, N.J. To respond to this column, e-mail him at our editorial offices at

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