A founder of a small online retail grocer once told me that building a company culture is like taming a fickle beast: extremely difficult, but so easily gets out of hand. One of the core elements that affects corporate culture is compensation structure. While large corporations have the luxury of sizable HR departments and consultations with organizational behavior experts, small and mid-sized businesses must heavily rely on the decisions of the principal. Moreover, with social networking sites and accessible online articles about how Google is serving its employees lobsters for lunch, small business owners face difficult times in employee retention.
One common mistake that small businesses make in this arena is the absence of a clearly defined reward structure. I have experienced and seen too many principals hand out bonuses on a whim and think that employees should appreciate whatever amount they receive. In a purely economic perspective, yes- the employee should be ecstatic about that additional payroll check. The reality, however, is that the lack of transparency more often leads to decreased morale. Nobody has heard of a Major League contract with incentives that the player does not know about (and surely no GM would tell the player that they just should do well and “expect” something, something at the end of the season).
People are inherently reward driven. A possible solution to reach a win-win situation is to communicate a compensation structure based on key performance indicators to all employees, and assess bonuses on a regular (quarterly, bi-annually, or annually) basis. Also, rewards are even better when they are above expectations, and would be best to keep two versions of the reward structure: a conservative one for the employees, and a slightly higher one for the owner, who could choose to deliver a pleasant surprise for everyone at the Christmas party.