Kim Stephenson: Why offer Christmas incentives?

The general definition of a bonus is something given in addition to the usual or expected. In business, it is additional to the employee’s usual compensation.


The Christmas bonus, be it a cash or non-cash incentive, once a year in addition to usual compensation, is not linked to improved performance or a profit share. Nor is it designed to focus employees on objectives or behaviours. It therefore does not establish a link between pay and performance at team or individual level, or act as a driver for change of behaviour.

Purpose of offering Christmas incentives

It is usually intended to generate culture, not in the sense of enhancing team-working or customer service orientation, but in creating a caring culture, and a good place to work.

It is useful, when looking at policy on Christmas incentives, to examine the intended cultural impact. What is to be encouraged: loyalty, engagement, a sense of belonging, or the feeling that the organisation cares? The intention will influence the incentive power of the award and the best way to arrange it to maximise that influence.

Consider existing policies

There will have been policy, whether payment or not, in previous years. People are loss averse, which means more sensitive to losses than gains, and it will do more harm to be perceived as reducing or removing a previous incentive than it will do good to increase it by the same amount. Removal will violate employees’ bonus expectations.

There will be an existing culture. If the employer is seen as honest and fair, most policy is likely to be accepted as an attempt to provide something valuable to staff at a financially stressful time of year. In conditions of mistrust, any scheme (even the most generous) needs to be handled carefully or may be seen as an attempt to manipulate and will be regarded negatively.

Justice and honesty essential

There is often concern about outcomes, ensuring payments are seen to be equal and fair.

This is not usually a key factor. People readily accept unequal outcomes, provided that they perceive the method of calculation as fair. This is procedural justice, producing a system for calculating the value of a bonus (in money or non-monetary terms) that is seen to be fair, even if it results in a lower award for an individual. 

By contrast, a system that is procedurally unjust, even if it gives an individual a good bonus, may be seen as being unfair and so would not be a useful incentive.

Perception of honesty and good intent can be related to whether the culture is seen as transactional or transformational. Transactional cultures work on trades and transactions, so a bonus is something given and staff perceive that something is wanted in return. In transformational cultures, the incentive is perceived as intended to help the relationship to transform, and consequently more likely to foster trust.

How to choose an incentive

Money is flexible and usually welcome. It may not be as economical, for example, after tax, or as welcome as alternatives, such as gifts (for example, gym membership), recognition, development budgets for professional or personal development, or extra holiday entitlement.

Employers should decide what they want to achieve with the incentive, such as engagement. Assess the culture and how offers will be perceived. Bearing in mind the existing policy, if possible and where the culture allows it to work, ask staff what would be the best system.

If suggestions, such as a menu of options at a given value, can be adopted, use it and credit the suggester. If it cannot be used, explain why. 

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Be transparent and honest about the process, and any reasons for non-payment. Where possible, give genuine control to staff about amounts and methods.

Kim Stephenson is a business psychologist and member of the Association for Business Psychology