Want to Give Out Impromptu Bonuses? Do This Before Shelling Out Cash

As an owner, you want to acknowledge and reward your team when your firm is thriving. What Melissa typically sees is law firm owners excited about the health of their firms, who then decide to give their teams impromptu bonuses from a feel-good place. Melissa is all for this, but there are a few important considerations you must keep in mind before doing so.

Rewarding your team with an unexpected bonus feels good, not just for them but for you too. However, just because it’s impromptu doesn’t mean it can’t be a strategic and well-thought-out decision. Too many owners are shelling out extra cash without evaluating the facts and assessing the financial health of their firm, and it’s leading to a win-lose situation where their employees are winning but the firm is losing out.

Join Melissa on this episode as she offers you a guide for giving impromptu bonuses. You’ll learn why protecting the health of your firm must be a top priority, an evaluation process that will ground you in facts, not feelings, the four financial metrics you must be addressing, and Melissa’s favorite ideas for rewarding your team in non-monetary ways if you’re not quite ready to give them cash.

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What You’ll Discover:

• Why any formal bonus structure you implement must be a win-win for the firm and your employees.

• The perks that come from giving impromptu bonuses.

• How impromptu bonuses are typically carried out.

• What you must consider before rewarding your team with impromptu bonuses.

• An evaluation process that anchors you in facts, not feelings. 

• 4 metrics to look at to assess the financial health of your firm.

• How to be strategic and thoughtful about giving impromptu bonuses.

• What happens when you tell your team the reasons for giving them an impromptu bonus.

• Ideas for recognizing your team in non-monetary ways.

Featured on the Show:

• Create space, mindset, and concrete plans for growth. Start here: Velocity Work Monday Map.

• Join Mastery Group

• Join the waitlist for our next Monday Map Accelerator, a 5-day virtual deep-dive event.

• Schedule a consult call with us here.

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I’m Melissa Shanahan and this is The Law Firm Owner Podcast episode number 252.

Welcome to The Law Firm Owner Podcast powered by Velocity Work for owners who want to grow a firm that gives them the life they want. Get crystal clear on where you’re going. Take planning seriously and honor your plan like a pro. This is the work that creates velocity.

Hi everyone, welcome to this week’s episode. Today we are talking about giving impromptu bonuses. Just because it’s impromptu, doesn’t mean it can’t be strategic. And so I want to offer a bit of a guide for you all to think about impromptu bonuses within your firm. And there’s a lot of perks with impromptu bonuses. Some of you listening may have formal bonus structures in place, and they may or may not be working.

Many times when I meet people and I’m working, especially with private clients and they have bonus structures in place. One thing that’s common is to learn that the bonus structure that’s in place is not a win/win for the employee and also for the firm. You always want it to be a win/win. And many times when I meet people, the employee is winning big time, but it’s not the best thing for the firm. It’s unhealthy. The bonus structure is not serving the firm at all. And all of the upside or most of the upside is going to the employee.

Now, this is not about being stingy with employees. It’s about making sure that the health of the business is being taken care of because if it’s not, we’re going to run into problems, if you haven’t already. So having a formal bonus structure can be a really awesome thing. But it has to be well thought out and it has to be tested fully. When you run the numbers and you say, “Okay, if this employee that I’m going to give this bonus structure to, knocks it out of the park, blows everyone’s damn mind with their performance, what does that look like?”

And when they really do a great job, is it still a win/win for the business and for the employee? So you just have to think it through. This is not something that should happen quickly on the fly. These are things that you cannot claw your way back from very easily. If you’ve released a bonus structure and that’s the way it is, absolutely, you can make adjustments to the bonus structure. I mean, you’re the owner of the company and you can do whatever you feel is right and best for the company.

But it doesn’t go over well with people when you’ve given them a bonus structure, if you change it and in any way, it doesn’t line up as advantageous as it did as it was prior. Then it’s going to feel to them you’re taking something away. And human psychology, that doesn’t usually go very well. So you want to be thoughtful, really thoughtful when you’re putting bonus structures into place. You want to play out all scenarios that could happen and make sure that the business is protected in all scenarios when it’s happening.

And that it’s not just a neutral for the business, it’s a win for the business. That’s just a little bit of what I have to say about formal bonus structures that are put into place. What I want to talk about today is impromptu bonuses that are given. Impromptu bonuses are so fun. As an owner when you can really reward your team and acknowledge them with an unexpected bonus, it feels so good and everybody is feeling joy that is associated with it. So it’s a great thing to do and I’m all for it.

But there’s a few things you need to keep in mind before announcing or giving an impromptu bonus. And as a side note, before we dig into this, I will say I think impromptu bonuses are such a healthy way to acknowledge your team members through a bonus, through financial gain. But it’s not an agreement that you’re on the hook for from here moving forward.

And so the reason I’m bringing this up is because if you are in a place where you want to incentivize your team, you want to put a formal structure into place that makes sense for each person in their role. I am all for that, but until you have something nailed, that you’ve tried to poke holes in and it still is standing strong, it still seems like a really great plan. It’s going to be a win for the team member and a win for the business no matter what unfolds with that agreement and with the employee’s performance. Until you have that, impromptu bonuses are the way to go.

Now, impromptu bonuses, many owners get very excited when they have a great month or even a great quarter or they’ve noticed something. There was a big sale made or I don’t know, there’s something exciting that’s happened in the business. As an owner, you want to reward and acknowledge your team. You’re excited for them. You’re excited for you. You’re excited for the health of the firm. It’s natural to have the feelings, the positive feelings associated when things go really well.

What should not be done is a decision based on your positive feelings to give a bonus to your team. And that is typically how impromptu bonuses are carried out. And I want to take this opportunity to help you think through how to be more strategic with your impromptu bonuses that you do give. Because I think it’s a very healthy thing to give those depending on your firm and depending on if you don’t already have a formal structure in place for incentives and bonuses.

It can be a very healthy way to give people a high five and say thank you and to encourage them to keep going and help provide motivation and all of that. But they don’t feel a sense of entitlement to it because it’s impromptu. So let’s just say you experience something in your firm that just creates all the positive feelings. You are excited, you are proud of your team. You are thrilled about a certain deal that closed, whatever it might be.

You are stoked and everything in you is screaming, yes, we are on the right track. We should keep going. I should share with them in this excitement. I should throw them a bone. I should give them a bonus. When you feel that way, my advice to you is to sit down and walk through what I’m getting ready to lay out before you make the final decision to give the impromptu bonus.

The first thing you’re going to sit down to do is an evaluation of each team member and why they should receive a bonus. When you are sitting down to look at the why, there’s two aspects to come from when you are thinking through this. One is data, what are the numbers showing? What did they contribute? What did they do? What KPIs did they directly impact or affect? And if you don’t have KPIs set up in the firm, just what numbers did they directly impact and affect? That’s the first thing is, get very clear on the data.

These are the facts that you have to have under your belt when you’re making decisions about giving money out. It’s not your money. You have to remember this. It is the business’s money and it’s your job as well as everybody else’s job in the organization to be a good steward of this entity. So it isn’t just about you giving money out. It is about the business. And if you aren’t going on data, you’re not doing a very good job with that. You have to go on data. You have to be very clear, explicitly clear on why this person, this team member deserves a bonus.

Now, if you just had an awesome month or an awesome quarter, and so you just wanted to give a bonus to everybody in the firm, okay. But still, you still need to sit down and think through each team member and how they contributed, why they deserve a bonus. And the first lens that you’re going to look through when you’re evaluating this is data. So, see what you can tie to them, each team member in terms of numbers and how they affected those numbers.

The second thing that you’re going to look at and evaluate sort of as I just mentioned a minute ago, there’s a lens you’re looking through. The second lens you’re going to look through as you’re evaluating is attitude. Make notes about the attitude. Jot down what you’re noticing. And you have to be 100% honest here because just because things are going well, maybe from a numbers perspective. But if their attitude is just not what it needs to be inside of your company, that is a factor when it comes to performance, data and attitude.

There are different ways you can rate attitude. You can do a scale of one to five. Five is just the best attitude, a model employee in terms of engagement and enthusiasm and a willingness to do what it takes. A true team player, that kind of thing is what I’m talking about. And so scale one to five, zero being they are just not bringing it at all. And if they’re bringing, they’re bringing some attitude. They’re not engaged. And then the five is just the model, the model team member.

So you want to write down some things for every single team member around data, some data points, and how they contributed and affected the numbers and then attitude. Now, having done this evaluation gets you into facts and out of feelings. And what I mean by that is the feeling of excitement and wanting to just throw money around because you are feeling really good about them and the team and you want to. This is based on feelings and it’s okay to feel that way. But we do not make decisions based on feelings.

We make decisions based on facts, largely based on facts. So this is a way to do that. And you sit down and you evaluate each team member from a data perspective, from an attitude perspective. Now you’re working with something and you can easily see who should maybe get an impromptu bonus or who should not, or who should get more of an impromptu bonus than others because of the evaluation you’ve sat down to do.

Once you have done the evaluation portion, the next thing you’re going to do is assess the financial health of the firm. I’m going to give you four different metrics to look at and evaluate. You can add to this list but you have to have at least these four.

One is your AR. What money are you waiting on and how healthy is it? Are you waiting on and have been waiting on some payments to roll in and they just haven’t rolled in? Is it pretty good except there’s a couple of clients that have some major bills that are still outstanding and they need to pay those? And so it is affecting the bottom line because it’s such a big deal or your ducks are not in a row with AR. You’re not billing on time so that you can’t collect on time. The system, your system is a mess.

So that is the first thing to evaluate. And if this isn’t healthy, my advice to you is to get this healthy before you ever consider giving an impromptu bonus. This is your firm’s money that is owed. So make sure you’re billing on time and make sure you have a process in place that really allows you to capture what you’ve billed to a very high degree, 100% is what you should shoot for. How do you do that? How do you make it happen? What needs to be put in place? What kinds of reminders?

Who needs to own AR? Is somebody owning it or is it you as the owner, which, who has time for that even though I know we should because it’s our money, but you’re busy doing other things. This whole realm, if the number isn’t good with AR, then that’s one thing. And if you have no system for AR, that’s another thing. So both of these need to be taken into consideration when you are evaluating the financial health of the firm before you decide to start giving impromptu bonuses.

The second thing is profitability. Are you profitable? Sometimes there’s so much cash flying around that you don’t realize you’re not profitable. You don’t realize how tight things really are. It will catch up with you. I mean, we’ve all probably had moments like that. It will catch up with you, but is your firm profitable?

The next one is debt levels. What are your debt levels? Are you consistently making headway on those? Do you feel there’s a healthy relationship to the debt? Looking at all of that and evaluating that is going to be really important before you decide to give an impromptu bonus.

The last one is cash flow. I mean, this is greatly affected by AR, but cash flow, meaning there’s money coming in, there’s money going out. Are there certain points in the month that are tighter for you than others? You have to think through all of these things instead of just giving out a bonus today because you feel everybody’s doing a good job. So looking at cash flow to make sure that you are timing this bonus in a way that could make sense, should you even decide to give it based on the evaluation that I’ve already talked about in this episode.

So those are the four things in terms of financial health that you’ll want to look at before deciding to give the impromptu bonus.

So let’s just say that as you’ve done your evaluation of each team member, you have notes for each team member about how they contributed to the data or the numbers that they affected and how they affected those. And their attitude, notes about their attitude. And you’ve looked at the financial health of the business and the four key metrics that I’ve mentioned. Well, cash flow isn’t a metric, but aspects, four key aspects that I’ve mentioned when assessing the financial health of the firm.

And everything checks out and you say, “Yes, we are in a great position. I have checked the boxes on these things in terms of financial health, we’re in a good position.” Now you can make some decisions because you’ve got a lot of facts in front of you about just how well each team member has done and how impressed you are by each team member. And now you have enough information because you dug into the finances a bit. You have enough information to figure out what can you afford to do that isn’t going to put stress on any of the aspects that you checked on?

So if all the boxes are checked and you in fact, there’s a green light for you to give an impromptu bonus. Now you have to determine what level of bonus you’re going to give. And when I think about this, I look at the total amount that will be paid out for bonuses. So each individual will receive something and what’s the total that will be paid out by the company for this impromptu bonus. So I will start there and figure out what feels okay for the health of the firm to be able to give?

And then once you have that number, go back and look at the evaluation you did in terms of data and attitude and decide how you want to divvy that up. Once you’ve made those decisions, the last piece of giving an impromptu bonus, which is a very important piece of giving an impromptu bonus. Is to individually let each team member know that they are going to be receiving the bonus, and why.

Now, the reason this is a part of this episode today is because often I will see owners that announce to the whole team at once that they’re really stoked about the work that’s been done and the numbers that were being hit. And so everybody’s getting a bonus this month. Woohoo, everybody kind of cheers and then goes about the work day and is happy. But in terms of leadership and guidance and acknowledgement, a better way to do this is to sit down with each team member individually and share with them your observations.

Share with them the notes from your evaluation over them as a team member when it came to how they contributed to the numbers moving in the right direction, and what you appreciate from an attitude perspective. So the notes that you had down when you were evaluating from an attitude perspective. And telling them those things and helping them understand the importance of those things. It will go a long way.

The impact of the bonus that you are about to give them will be deeper than if you just announce to everybody, “Hey, everybody’s getting a bonus, it was a great month”, kind of a vibe. After you have shared those things with them the next step is to let them know about the bonus that they will be receiving. And the way to do this, because it is impromptu, you have to help them realize how much thought was put into this.

So letting them know that we can’t always do impromptu bonuses but there are times when we can and right now is one of those times. And because of what you have observed and how they contributed to the success that has been happening lately in the firm, they’re going to be receiving a bonus of x amount. And that you’re thrilled that the business is in a place to be able to give this to them and thank them for doing such a great job. That, my friends, is how you give impromptu bonuses.

Impromptu bonuses are awesome, but you have to be intentional how you do it. You have to go through these steps so that you are basing your decisions on facts, not feelings. And you are making sure that the business is taken care of as well as being able to pay out.

Now, something worth mentioning. There may be a time when you are going through the checklist that I’ve given you on this podcast and it’s just not there, you just can’t give it. You can’t be honest and say that everything is stable in the firm from a financial health perspective. And really listening to that because that means you are being a good steward over this firm. And if you really listen to that and you don’t ignore the signs that you’re seeing with the financial health and just give the money anyway because it’ll all work out, or whatever mentality you might have around it.

I just want to encourage you to abide by the facts of what you find. And if you really want to do something for your team, there are other things that you can do that may not be as big of a bonus but it’s still acknowledgement which is very important.

So I guess there’s two things here. One, if you are looking at the numbers that I’ve asked you to look at and it’s just not there, the things are not in place for you to feel comfortable, it really is a win/win for you to give this impromptu bonus. Then number one, I would say do not do it. Don’t go against the facts. Go with the facts. Listen to the numbers, the numbers tell a story. So if you are not quite there yet, it’s okay, you will get there, be patient, delay gratification.

And then the second thing I would say is, that does not mean that you don’t do anything to acknowledge and reward them. There are other ways of looking at this without shelling out cash. So I’m going to give a few ideas here, but you know your team. You can talk to your team about what’s important, the things that they care about, and make some decisions from there. But I would say recognition and personalized recognition, it could be a handwritten thank you note to each team member or certain team members expressing appreciation for their individual contributions.

You can also do public acknowledgment during team meetings where you give a shout out to them and you want to be specific. Again, if you have done this process that I’ve laid out here today, you already have really specific information about each team member in terms of data and their attitude. Highlight those things when you’re giving a shout out about them in a team meeting.

Maybe you rotate through and give someone new a shout out each team meeting for the next couple of weeks until you’ve really gotten through everyone and said what you wanted to say. So recognition and personalized recognition.

Another thing you can do is to offer extra time off. Now, this depends on the scenario and the circumstances at your firm. But again, facts, not feelings, just make sure it does make sense for the business, that roles responsibilities will be covered. Things can keep humming, if somebody takes a day, things can keep humming as if they were there. And that can be an option.

Another idea is to put recognition awards into place. You could do something more formal around recognition, maybe it’s monthly, maybe it’s quarterly for performance or exemplary behavior. But recognizing them maybe with a certificate or a plaque or some sort of token of appreciation to commemorate their achievements. That can go a long way. So maybe it’s instituting that instead of paying out cash bonuses right now, you can get there, you will get there. But until then, what can you do that’s also very healthy for the business?

And then the last thing I’d say is personalized rewards, so rewards tailored to their preferences. It could be a gift card to a favorite restaurant or a store or online retailer, something like that. And if you don’t already have something like this in place, you can, when new team members are coming onto your team, being onboarded, you can have a getting to know you survey or form to fill out. Or you can ask the preferences on these kinds of things so that when you do want to reward them in a personalized way, you have some insight into the things that they’re interested in and care about.

We do that at our company. I know a lot of other firms do that as well. So you can get your current team up to speed by having them fill it out. And then from there on, every new team member, it’s a part of their onboarding experience.

And the final idea I’ll give you here today is some sort of organized event or experience, a team lunch, a team outing of some sort. You hear a lot about people doing escape rooms or something where you have to work together as a team, but this could be going out for ice-cream. It doesn’t have to be that big of a deal but it breaks up from the monotony of work, that work can be. And takes people outside of your four walls, gets them together and does something fun.

If you’re a virtual team, there’s lots of virtual experiences that are available these days to do with a team. We did, I think it was last October, we hired a woman that does for virtual teams, well, and parties or whatever, but all virtual and it’s a craft cocktail experience. And so she would send this beautiful box to each person and inside had these small bottles of the liquor that would be used or the syrups that would be used, or the herbs that would be used and mixers. Everything was packaged really beautifully and there were recipe cards in there.

And then she would guide the making of your own cocktails and it was fun. I was surprised how much fun. And just how funny it was, we’re all sitting there shaking our stuff up and our mixers and really creative. They weren’t straightforward stuff that you would just think of on your own. She had a lot of creativity. She tailored it to our branding in terms of the colors and all of that. It was a really cool experience.

So virtually nowadays you can find experiences that can bring everyone together and let collectively your brains focus on something else and just have a good time. So those are some of the ideas that if you’re not really ready when you sit down to look and you’re honestly not there. Your financial health is not where it needs to be in order to be shelling out additional cash on top of what you already pay people, but you still want to acknowledge, there are many ways to do that.

It’s so easy to just go to money and give out money and bonuses when we feel excited. But that’s not always the best thing and you have to look at what’s a win for everyone. And the most important thing is to acknowledge with specificity the team members and each individual team member and how they contributed to the excitement that is happening at the firm.

Alright, hopefully this gave you some really good ideas. I’m a big fan of impromptu bonuses, but there has to be checks and balances before we just start shelling out cash. Alright, everybody, thank you for listening and tuning in this week. I’ll see you here next Tuesday.

Hey, you may not know this, but there’s a free guide for a process I teach called Monday Map, Friday Wrap. If you go to velocitywork.com, it’s all yours. It’s about how to plan your time and honor your plans so that week over week more work that moves the needle is getting done in less time. Go to velocitywork.com to get your free copy.

Thank you for listening to The Law Firm Owner Podcast. If you’re ready to get clearer on your vision, data, and mindset, then head over to velocitywork.com where you can plug in to Quarterly Strategic Planning, with accountability and coaching in between. This is the work that creates velocity.