It’s that time of year again where you may be considering giving out a Christmas bonus. There’s a great chance your employees are anticipating it as well. But can your Christmas bonus actually have a negative impact on your culture? Simple answer is yes. But it can also have a positive impact on culture and performance if done correctly. I unfortunately learned lessons the hard way on what not to do — and also had great success with one that worked well.

Early in my business, when I only had a few employees, I wanted to be generous and gave everyone a very nice bonus. The next year rolled around and we tripled in size. The team was expecting the same type of bonus, but we didn’t have a great year. And to pay out that big of a bonus to three times as many people was … well, it was a lesson learned the hard way. I went ahead and did it, but knew I needed a better way.

DON’T: Wing it or make it an arbitrary amount each year.

I spoke with someone in the industry the other day on this topic and he told me that his old boss would give a week’s pay when he felt like it. But some years he didn’t feel like it and it “really sucked all the way around when he didn’t.” Another person said a large company paid on performance, but no one understood how it was calculated or earned. So the end of the year would roll around and it was still a mystery if they were getting one or not.

Another person who had worked at a company for 15+ years got a Christmas bonus of a $25 Walmart gift card. What type of message do you think that sent? If you can’t make the bonus something worthy of the objective you are trying to accomplish, then don’t even offer one.

DO: Have a defined plan.

To start a plan, you need to start by asking yourself what you are trying to accomplish with a bonus. Is it to increase morale and show appreciation? Reward loyalty? Give back during the holidays? If so, then ask yourself what type of bonus is appropriate and would make you feel excited to get.

For me, I knew I wanted to create a plan that was scalable, showed appreciation, rewarded teamwork, and also that would arrive in time for employees to use for their Christmas shopping.

The new bonus would be earned by the team throughout the year and then distributed equally early in December. (A separate individual performance bonus was done as well, but that is a different conversation on performance-based pay.)

I added this to the budget and also made a fund from all of the scrap metal. All proceeds would go to the Christmas bonus. This was great because it encouraged everyone to bring all the metal back for us to recycle and discouraged them from taking it home for their own scrapping.

Then we set monthly revenue goals for the team. If and when we hit the goal, we would take 1% of that month’s revenue and put it toward the bonus. That way everyone knew what to expect and we would all work together to make it as large as we could. It could be tracked throughout the year and even displayed in the office. This solved the problem of how much to arbitrarily give and also promoted teamwork plus performance.

The next bit of advice is to pay it out on a defined date. Keeping them in anticipation or wondering when they will get it can cause unneeded anxiety. We set a date in early December so it gave the team plenty of time to use for their family's Christmas shopping (or whatever they planned on using it for). We handed these out typically at our company Christmas event.

My biggest lesson on Christmas bonuses came months after the payout. I stopped by an employee's home and, while visiting, saw something familiar hanging on his refrigerator. There was the handwritten note of appreciation I wrote him when I gave out the bonus. I mentioned it to him and he said that was the first time in all years working in the trades that a boss had taken the time to acknowledge his contribution for the year, and it was prized just as much or maybe more than the money.

Finally, remember that everything you do has a positive or negative impact on your culture. Make yours great by taking some time to create a Christmas bonus that is scalable, shows appreciation, rewards teamwork, and is predictably given on a set date. And the most important part — don’t forget to show appreciation in other ways versus just money!