Should slackers get year-end bonuses, too?

At some offices, everyone gets the same extra pay at holiday time. Is that good for morale, or bad management?

By Anne Fisher, Fortune senior writer

(Fortune) -- Dear Annie: Help! I've been in charge of my small (six-person) department for only about eight months now, so this is the first time I've had to decide how to divvy up the year-end bonus pool, and I'm in a quandary. (I already tried asking my boss for advice, but all he said was: "It's up to you. Welcome to management!")

Here's the situation: Our company had a so-so year, so the total dollar amount of bonus money is somewhat less than last year's. Meanwhile, among my five subordinates, two have done really outstandingly great work, two have performed just okay, and one has kind of slacked off. The person who had this job before me used to give everyone the same bonus regardless of performance, but I feel that is unfair to my best people. But if I give them more, I know that word will get around, and the people who get less will be furious. One or two may even quit. What's the best way to handle this? -Scrooge

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Dear Scrooge: It sounds to me as if you already know how you'd like to proceed here - i.e., give bigger bonuses to the best workers - so do it. (As your boss's remark implied, sometimes being a manager means having to make decisions that may infuriate some people.)

But "don't miss a 'coachable moment,' " warns Tom McMullen, head of the Hay Group's U.S. compensation consulting practice and co-author of a new book, The Manager's Guide to Rewards (Amacom, $24.95). "A bonus with no context is a missed opportunity."

"This time of year offers you a great chance to sit down with your employees individually and communicate how their performance relates to the success of the company," McMullen says.

In other words, even if no formal performance review is scheduled to coincide with bonus season, you can talk to each of your people about how they're doing.

"If managers don't give employees performance feedback along with their bonuses, employees don't get clarity," he adds. "Just handing out varying amounts of money, if employees don't understand what's behind the bonus, is really a waste of resources."

Alas, most bosses shy away from delivering bad news, he says: "It's generally much easier for a manager to tell someone that his or her bonus is small because 'we had a lousy year' " than to open a discussion of how that person might do better - and earn more - next year. "It's a conversation that doesn't happen often enough," McMullen notes.

Even when you talk to your star performers, don't overlook the chance to address intangibles, like whether they're getting the resources they need, including things like "learning opportunities, interesting work, and access to higher-ups," says McMullen. "Our research shows that these are the keys to keeping your best people, and they are things that you, as the line manager, have more control over than anyone else."

Of course, you could chicken out and keep the peace by following your predecessor's example and giving the same bonus to everyone. But whom does that help? Sooner or later, evaluation time will come around, and you'll have to be honest with your less-than-stellar people anyway. You might as well start preparing the way now. If more bosses were willing to bite this bullet, McMullen points out, "there wouldn't be nearly so many unpleasant surprises" at review time.

As for your worry that one or two disgruntled employees will quit, that might not be so terrible. "Pay, including bonuses of course, can send a loud message if you want it to," McMullen says. "Not all turnover is bad. If bonus amounts truly reflect performance, they can encourage your least productive employees to go to work for one of your competitors."

When everyone gets the same bonus, is that good for morale, or bad management? What happens at your workplace? Post your comments on the Ask Annie blog.

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A quick follow-up to last week's column on how to hire seasonal help for the holiday rush: David Demyan of Express Personnel Services in Boca Raton, Fla., writes: "One of the easiest ways to avoid hiring headaches is to make them someone else's headaches by employing a staffing agency, which will take all the extra steps you mention" - criminal background checks, for example - at relatively low cost, thanks to economies of scale. He's not entirely unbiased, but it's still a good suggestion. Thanks, David!

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