Local Bonus Guidelines for FAS Managers

Spot bonuses are designed to be awarded to employees to recognize “going above and beyond” in their roles. They are best awarded as close in time as possible to the behavior being rewarded. The dollar amount is less consequential than the understanding that you recognize that the employee’s performance. Some departments provide spot bonuses as part of their local recognition program.  

Eligible employees: Exempt, non-exempt, and HUCTW benefits-eligible staff are all eligible for spot bonuses. (As an inclusive workplace, there may be times when a spot bonus is an appropriate recognition for a contingent employee that goes above and beyond in their contingent role.)

Earnings code: BUN (Bonus Unexpected/Spot)

Recommended award amounts:

• $200-$500 for employees in grades 56 or lower
• $500-$1,000 for employees in grades 57 or above

Timing: Spot bonuses are most effective when awarded as close to the event being recognized and rewarded.

How to pay for spot bonuses: Spot bonuses are paid from the local bonus budget. All bonuses should be paid using the employee’s regular costing.

Grossing-up spot bonuses: In the past, some managers have adjusted the spot bonus to take into account the tax impact of the bonus, a practice known as “grossing-up.”  Because of the administrative overhead associated with grossing-up small dollar bonus amounts, the dollar amounts of the spot awards have been adjusted to eliminate the need to gross-up the amounts. Going forward, departments are not permitted to gross-up spot bonuses.

Gifts of tangible property less than $100: A gift of tangible property may be given to reward an employee for going above and beyond or for the achievement of a work-related goal. Per IRS regulations, tangible property of less than $100 is not considered taxable income to the recipient. 

Ideas for spot recognition include a box of chocolates, a book by the employee’s favorite author, or something from the COOP like a Harvard sweatshirt or canvas bag.

Please note: If you would like to give a gift of tangible property equal to or greater than $100, then, per IRS regulations, the gift will be considered taxable income to the recipient. Please refer to the Harvard Financial Policy Office’s Gifts and Celebratory Events for Employees and Nonemployees for more information and reporting requirements. If your gift of tangible property will be taxed, best practice is to inform the affected employee, so there are no surprises at tax time.

Do not use gift cards: Because of the accounting regulations associated with the imputed income value of gift cards, gift cards should not be used for staff recognition.

Project bonuses can be effective tools to recognize and reward long-term, sustained effort on an impactful project in a department, division, or the FAS. Typically, these are awarded at the end of a large project, but for a very long project, they can be awarded at significant milestones along the way. The use of project bonuses will depend on your project budget (some departments build them into the project budget) and how the project went (did it come in ahead of schedule or under budget or did it face and overcome unexpected challenges). Selecting individuals for projects is another opportunity to be intentional and mindful of any biases in favor of or against particular employees.

It is important that project bonuses are included in the budget from the beginning so there are funds available to pay for them.  When awarding project bonuses, set clearly defined criteria by which you determine who on the project will (and will not) be recognized and rewarded. Bonus amounts should reflect the employee’s role and contribution on the project, the length of time of the project, the impact of the project deliverables, and project challenges that were addressed.

Eligible employees: Exempt, non-exempt, and HUCTW benefits-eligible staff are all eligible for project bonuses.

Earnings code: BPU (Bonus Project Unexpected) if the bonus was not built into the project plan to be awarded at a particular project milestone. BPE (Bonus Project Expected) if the bonus was built into the project plan to be awarded at a particular project milestone (e.g., project completion).

Recommended award amounts:

Timing: Project bonuses are most effective when awarded at the recognized completion of a project milestone (e.g., project completion) and tied to the success and impact of the project.

How to pay for project bonuses: Project bonuses are ideally paid for from the project budget, but project bonuses may be paid from the local bonus budget. All bonuses should be paid using the employee’s regular costing.

Grossing up project bonuses: Because of the significant increase in expenditure, departments are not permitted to gross up project bonuses.

A performance bonus is an additional bonus type available to FAS managers for their non-union employees. These bonuses are part of the annual non-union compensation program and may not be awarded to HUCTW employees.

Exceptional Performance Bonus Awards are designed to recognize and to reward documented exceptional performance and effectiveness in a given fiscal year. FAS managers may recommend to their local Administrative Dean that an award be given to an eligible employee based on documented exceptional performance (i.e., have received a completed performance review with a rating of Exceptional Impact) of the employee that meets or exceeds the following criteria:

Contributions have significant and consistently exceptional impact and value to the department and/or the organization. Makes unique, often one-time achievements that measurably advance progress towards organizational goals and/or result in major improvements.  Easily recognized as a role model by high-performing peers. Viewed as an excellent resource to provide expertise, guidance, advice, mentorship, or support to others.  Demonstrates a range of high-level capabilities and actively takes on higher levels of responsibility.

FAS staff members eligible for Exceptional Performance Bonus Awards are:

• Benefits-eligible, full-time, or part-time staff (a pro-rata amount should be awarded to part-time employees)
• Exempt or non-HUCTW, non-exempt staff (HUCTW employees are not eligible)
• Hired in their role prior to the start of the current fiscal year
• Pay grades 47 through 90
• Rated by manager as Exceptional Impact in current fiscal year performance review form

As these performance bonuses are tied to fiscal year performance, all Exceptional Performance Bonus Awards should be processed and awarded prior to the end of the fiscal year in which the performance is being recognized.

Eligible employees: Exempt and non-exempt, non-union benefits-eligible staff are eligible for exceptional performance bonuses.

Earnings code: BPV (Bonus Performance/Variable)

Maximum award amounts: Maximum performance bonus award amounts have been calibrated to provide meaningful award amounts that recognize and reward exceptional performance at that grade level.

Timing: Performance bonuses are awarded for exceptional performance for a fiscal year. They should be awarded within the fiscal year in which the performance was exceptional, following the completion of the final performance review conversation of the year in which their manager recognizes and documents their exceptional performance for that year.

How to pay for performance bonuses: Performances bonuses are paid to non-union employees from the annual non-union bonus budget provided to divisions and departments as part of the annual non-union compensation program. HUCTW employees should not be paid performance bonuses. All bonuses should be paid using the employee’s regular costing.

Grossing up performance bonuses: Because of the significant increase in expenditure, departments are not permitted to gross up performance bonuses.

Sign-on bonuses are becoming increasingly useful tools for attracting talent into open roles. Sign-on bonuses can be used to encourage a candidate to accept an offer, especially when there is a discrepancy between what the candidate is asking for and what is an equitable salary offer. They can also enhance the compensation package being offered to a candidate without adversely impacting internal equity, especially when the external labor market is growing increasingly expensive.

A well-designed sign-on bonus can do triple duty. It can be:

• A recruitment tool
• A performance incentive
• A short-term retention tool

That is, a sign-on bonus that provides enough incentive to encourage acceptance of an offer (a recruitment tool), is paid out contingent on the successful completion of the orientation and review period (performance incentive), and at some agreed upon future date (retention tool), can accomplish several key goals in your talent search.

Eligible employees: Exempt, non-exempt, and HUCTW benefits-eligible staff are all eligible for sign-on bonuses.

Earnings code: BSN (Bonus Sign-On)

Recommended award amounts:

Timing: Sign-on bonuses will be offered as part of the initial compensation package in the offer letter, with the details for timing of the award included in the offer. Ideally, the sign-on bonus would be structured to be paid out after the successful conclusion of an orientation and review period. To encourage employee retention in the new role, you can pay out the bonus at some agreed-upon future date, for example, three to six months in the role.

How to pay for sign-on bonuses: Sign-on bonuses are paid for out of departmental vacancy savings. All bonuses should be paid using the employee’s regular costing.

Grossing up sign-on bonuses: Because of the significant increase in expenditure, departments are not permitted to gross up sign-on bonuses.

Retention bonuses are rarely used bonus awards designed to encourage an employee whose high demand skills are essential to the completion of a critical project or organizational restructuring to stay through the completion of that project or restructuring. They should only be used for employees who are vulnerable to leaving prior to the completion of a critical project and must be tied to successful completion of that project. (If the employee is not at high risk for leaving, a regular project bonus is a better bonus strategy.)

Retention bonuses are difficult to manage well because they create competing incentives for the employee and the department. If the employee is truly at risk for leaving (because of other opportunities, dissatisfaction with the current workplace situation, or simply looking for something new), offering a bonus to stay creates a financial incentive to stay for the bonus but not necessarily to perform well while there. Managers of these employees must be prepared to manage these sometimes-difficult situations and should consider all opportunities to address the root causes of the employee’s desire to leave.

A retention bonus is a rarely used, short-term retention strategy, designed specifically to retain a critical, but vulnerable employee on a critical project for a specific amount of time. The expectation is that once the project is completed, the employee will leave. If the goal is to retain an employee for the long-term, managers should focus on providing the employee recognition; career development opportunities; aligning projects to the employee’s skills, strengths, and long-term career goals; and reviewing the employee’s salary to ensure that it is appropriate.

Retention bonuses require a retention agreement up front that specifies the terms of the bonus, the bonus amount to be awarded, how long the employee must remain in their role, and how the success of the project completion will be measured. Because of this requirement and because retention bonuses are so difficult to manage well, managers need to discuss the situation with their HR Partner and Ad Dean, so the agreement can be structured appropriately.

Eligible employees: Exempt, non-exempt, and HUCTW benefits-eligible staff are all eligible for retention bonuses.

Earnings code: BRT (Bonus Retention)

Recommended award amounts: The amount of the retention bonus should take into consideration the employee’s annual salary as well as the length of time intended to retain the employee. A good guideline is between 10-20% of the employee’s salary for retaining an employee from six to twelve months and successfully completing the project or restructuring.

Timing: The retention bonus should be structured to pay out a lump-sum of money following the successful completion of the critical project or restructuring for which it was designed. The agreement must be made in writing, stating the amount, timing, and conditions under which the retention bonus will be paid. The bonus is not paid until the conditions have been successfully met.

How to pay for retention bonuses: Retention bonuses are paid out of the department’s operating funds. Managers who wish to use retention bonuses should seek approval to do so from their Administrative Dean or equivalent. All bonuses should be paid using the employee’s regular costing.

Grossing up retention bonuses: Because of the significant increase in expenditure, departments are not permitted to gross up retention bonuses.

For many years, the FAS has not included bonus guidelines for HUCTW employees because their compensation is governed by their negotiated contract, which specifies increase rates and amounts as well as any negotiated bonus amounts. Historically, the contractual increases and bonus awards for HUCTW staff have exceeded those of their non-union colleagues. In some years, non-union employees received no increases due to the financial constraints FAS faced at the time. But even during those difficult financial times, small bonus budgets were made available to departments to recognize and reward non-union staff. To avoid those limited non-union funds being spent on HUCTW compensation, the FAS limited bonuses to non-union employees.

However, there may well be times when bonuses can be useful tools to recognize and reward an HUCTW employee who goes above and beyond in their role. Specifically, there are times when a well-timed spot bonus may be just the recognition needed to reward a union employee. Consider, too, HUCTW members who have given long-term, sustained effort on an impactful project in a department, division, or the FAS for a project bonus. There may be times when a sign-on bonus can incent a candidate to take that difficult-to-fill HUCTW role. Allowing HUCTW employees to be eligible for certain bonuses further supports our equity and inclusion goals.

One bonus type should not be provided to HUCTW employees: The Exceptional Performance Bonus Program is specifically a non-union program, paid for from the non-union compensation budget.

How to pay for bonuses to HUCTW staff: As stated above, the FAS non-union performance bonus budget is provided specifically for non-union employee compensation. Spot and project bonuses for HUCTW employees should be paid from the local bonus budget. All bonuses should be paid using the employee’s regular costing.

Interim coverage pay is not a bonus, but it is an additional payment type that is available to provide additional compensation to exempt FAS employees who are providing coverage at a higher grade level for a sustained period of time (usually three months or longer). (See below for how to manage interim coverage provided by non-exempt staff.) Interim coverage may be necessary when an employee is asked to cover for a departing colleague or manager, for colleagues on an extended leave, or during staffing transitions. However, managers are strongly encouraged to consider all available options for coverage other than assigning the work to another employee (e.g., hiring a temporary employee to provide coverage or temporarily pausing some duties, when possible), as these interim coverage situations—particularly when they extend for longer periods of time—can lead to burn out and other long-term employee relations issues.

The best practice for managing this coverage and payment is to draft a letter to the employee stating the terms and conditions of the coverage and the payment, the estimated start and end dates, the specific higher-level duties and responsibilities the employee will be expected to perform, and how success will be measured during the interim coverage period.

Since interim coverage pay is an additional payment over and above the regular salary, it can be scheduled to be awarded on a regular basis during the coverage period (e.g., as an addition to their biweekly paycheck) or be paid out in a lump sum at the end of the coverage period.

Eligible employees: Only exempt benefits-eligible staff are eligible for interim coverage payments. See below for interim coverage compensation for non-exempt staff.

Earnings code: ICP (Interim Coverage Payment)

Recommended award amounts: There are two approaches managers can take to determine an appropriate payment amount for interim coverage pay. The recommended approach is to ask for an interim coverage payment estimate based on the job code of the vacant position and an estimate of the percentage of time that will be spent performing the higher-level duties. The FAS HR compensation group can provide an estimate of the additional payment based on the employee’s current salary and an estimate of the salary the employee would earn in the higher-graded job code according to the interim essential functions they will be performing.

A second approach is available if the interim coverage was not planned for and needs to be paid out after the fact as a one-time, lump-sum payment amount using the recommended amounts provided for project bonuses as guidance:

Recommended award amounts for one-time, lump-sum payments:

Adjustments to base salary for exempt employees’ interim coverage payments are NOT recommended. Salary adjustments can interfere with employees’ benefits tiers and annual salary increase calculations, requiring additional administrative overhead to manage appropriately.

Timing: Best practice is to plan for interim coverage, drafting a letter of understanding for the employee providing coverage, prior to the coverage beginning. The letter should state the terms and conditions of the coverage and the payment amount for the specified coverage period. If the manager has not planned for the coverage and is looking to compensate an exempt employee for coverage after the fact, the lump-sum payment should be made as soon as possible.

How to pay for interim coverage: Interim coverage payments are paid for out of departmental vacancy savings from the position being covered. Interim coverage payments should be paid using the employee’s regular costing.

Grossing up interim coverage payments: For FAS-wide equity and consistency and because of the significant increase in expenditure, departments are not permitted to gross up interim coverage payments.

Interim coverage for work in lower salary grades: Based on federal law, one of the criteria for exemption status is that exempt employees are paid a salary for their work, regardless of the number hours spent performing that work. Thus, when exempt employees provide coverage for a position with a lower salary grade in their unit, especially if the work is within their managerial purview, no additional compensation is warranted. However, in situations in which an employee is unexpectedly covering a lower-graded role for a long time, a spot or project bonus for going above and beyond may be appropriate.

There are uncommon situations where interim coverage payments may be considered for covering for a same-level or lower-level role elsewhere at the University. For example, if a department administrator in one department is asked to cover the work of a vacant department administrator role in another department, the second department may pay interim coverage payments to the covering department administrator. Please speak to your HR Partner for guidance if you are considering this option.

The HUCTW Personnel Manual specifies that work occasioned by the absence of a supervisor or co-worker should be paid as extra compensation.

“Ordinarily, extra compensation should be paid for such work when it is anticipated that work will be performed for more than 20 work days when covering for a co-worker or for more than 7 days when covering for a supervisor. Extra compensation for such duties assigned for shorter periods of time may be considered. Extra compensation will be set at a negotiated rate appropriate to the work performed.”

Based on federal and state labor laws and the HUCTW contract, the ONLY proper way to compensate overtime-eligible staff taking on interim assignments as specified above is to change the base rate of pay during such time as the employee is providing coverage for the higher-level role. As such, all additional work assignments should be documented before the staff member begins such coverage, as outlined in the HUCTW contract. This ensures that any overtime calculations are managed appropriately. Also, it is particularly important that salary adjustments for non-exempt staff are made at the start of the assignment and are adjusted back down to pre-coverage levels upon completion of the interim coverage assignment. This will ensure that all hours working in the interim role are appropriately accounted for and paid.

The increased base rate of pay can be estimated based on the job code of the vacant position and an estimate of the percentage of time that will be spent performing the higher-level duties. The FAS HR compensation group can provide an estimate of the additional payment based on the employee’s current salary and an estimate of the salary the employee would earn in the higher-graded job code. The hourly rate of the employee would, then, be adjusted (using the PAY ADJ action and action reason) starting the day interim coverage begins, then adjusted back to their pre-interim coverage hourly rate effective the day following the end of the interim coverage.