Fewer businesses plan year-end bonuses

Slow sales and tight credit have small businesses scaling back on holiday cash.

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(CNNMoney.com) -- Workers used to some extra padding in their year-end paychecks may be going without this year: Among small businesses that pay bonuses, more than a quarter are cancelling them this year, according to a recent survey.

The poll, conducted by payroll services provider Paycycle, found that 53% of respondents typically pay a year-end bonus to their employees or themselves. But this year, slow sales and a credit crunch have many businesses running close to the bone and cutting expenses where they can - including holiday parties and bonuses.

"It's a difficult time, so business owners are preserving," says business consultant Roberta Chinsky Matuson founder of Human Resource Solutions in Northampton, Mass. "This is not a time to add overhead."

Even businesses that haven't yet been affected by the economic turmoil are spending more carefully, taking preemptive measures in case they need extra cash reserves in the future, Paycycle CEO Jim Heeger says.

"In my experience, when it comes to cutting costs, small companies will curb benefits and cut pay instead of laying off employees," he says. "Particularly at long-established firms, employees come first, because there's a family feel to them. When owners remove their own bonuses, it's to ensure the business keeps going with happy employees."

Some owners are cutting into their own paychecks to preserve their employees': While 26% of those that typically pay bonuses are eliminating them entirely this year, 32% of the owners surveyed by Paycycle said they will cancel their own bonus but still pay bonuses to some of their staffers.

Dr. John Gentile, CEO of South County Urgent Care in San Clemente, Calif., has given performance-based bonuses to his staff of 25 for the past three years, and plans to do so again this year even though it means skipping his own paycheck.

Business is up this year at South County Urgent Care: It's getting more walk-ins from patients looking for care that's less expensive than visiting a hospital or their usual physician. But while appointments are increasing, revenue isn't - payments are coming in more slowly. As a result, Gentile and the company's three other co-owners have forfeited their salaries for the past three months to ensure that they'll be able to pay their employees the bonuses they deserve. (All four owners practice medicine outside the company to sustain their own incomes.)

"Everyone shares in the success of the company," Gentile says. "Our belief is that the employees are the business. To have a strong work force, we have to take good care of them. They know that in this economy it's very good to have a job, so to get a bonus is great."

Cutting back on bonuses and other compensation can backfire and hurt the business, consultant Matuson says: "[Employees] say 'the heck with it' and lose their willingness to do the job. And that attitude will reflect on the customer."

Michael La Barge, president of credit card compliance firm Datassurant in Reston, Va., views compensation for his 25 employees as untouchable. "We're doing quite well, but I can tell you that I wouldn't take away bonuses if we needed to reduce costs," he says. "If employees already have low morale due to the economy, taking bonuses away would reduce it further."

If it came down to it, La Barge says he would rather skip on his own pay. "You just need to have the guts to talk to your employees about the company in tough times. The leadership of the company should be hurting if the rest of the employees are - that's just the right thing."

For owners in a tight cash crunch who have no choice but to cut back this year, full disclosure is the best policy. Matuson's advice: "If you think it's best to cut bonuses or pay, be honest with employees about the company's situation and why they're not getting what they expect - but then don't show up in a new BMW in January." To top of page

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