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How to Write a Bonus Cancellation Letter

5 minute read

When times are tough, businesses have to find a way to decrease their spending, and the first thing to usually go is yearly bonuses.

While it’s never easy to break the news that employees will not receive the bonus they expect every year, it can sometimes be a mandatory move to ensure that the company will hit all of its goals without having to use more drastic measures such as a layoff or RIF.

To help with this process, businesses should have template emails on file to make sure that the process goes over smoothly BEFORE they need to implement them.

Download our sample bonus cancellation letter here.

This is where a bonus cancellation letter comes into play.

By using a great bonus cancellation letter, HR leaders and managers can be ready if they ever need to use it. Instead of creating these letters ad-hoc and in the heat of the moment, planning a ahead can save a lot of headaches.

Let’s dive write in to what you need to cover.

A No Bonus or Bonus Cancellation Letter: The Beginning

Usually, letters like these are emailed to staff members, alerting them of the impending change. It’s vital that you alert your staff if their bonus is canceled because - if you don’t - you’re setting yourself up for a lot of trouble. Employees need to know about these issues far in advance so they can plan their finances accordingly.

The good news is that these letters - from a layoff letter or memo to a phased retirement plan announcement letter - all work in very similar ways.

To start the letter, you need to get right to the point. Start with something like:

“Dear [NAME], 

As you may know, this has been a difficult year at [COMPANY NAME] because of [REASON]. Due to this, [COMPANY NAME] hasn’t met its goals.”

This is just an example. You can take this and mold it to your corporate culture. The point of the examples in this piece are to give you a rundown of how the letter should flow.

This first section sets the tone. This isn’t a fun email - it is explaining something stressful about the company. Mainly, that for whatever reason the company’s goals were not met and, therefore, actions have to be taken.

Bonus Cancellation Letter: The Middle

The middle of the email or letter is where the core message is delivered. In this section, you need to explain that because of the reasons listed above, the company will be cancelling bonus checks this year.

Don’t try to insert small talk here. Get right to the point with something like this:

“This has left us with a big decision. How do we get back on track? After exploring our options, we have decided not to reduce costs through layoffs or reduction events, and to instead cut costs elsewhere. Unfortunately, this means that we will not be able to provide bonuses this year to our employees.”

This sample gets right to the point while also explaining that it could be worse. Most employees will be more open to their bonuses being cancelled if they come to terms with the alternatives: layoffs, furloughs, and permanent RIFs.

You shouldn’t try to hide anything in this letter. Explain exactly the thought process behind the move. If you simply write that the bonus is cancelled, employees will wonder why and start questioning every move you make. Not only is this bad for morale, it also fosters distrust and spreads misinformation.

Bonus Cancellation Letter

Both of these things you want to avoid. So, explain that the best way to cut costs is to cancel the yearly bonus and that, by doing so, you can keep the staff.

After you explain this, lighten the mood by explaining that this is a one-time move, and not one that anyone is happy with:

“As you know, this is the first year that [COMPANY NAME] will not give out bonus checks. We hope that with your continued support and hard work we will be able to return to our yearly bonus system next year.”

This explains that the hardship the company is facing is temporary and that the move to cancel bonuses will not be a permanent policy on the books.

If done correctly, you can help negate some of the negative feelings that this letter might cause. Again, don’t try to sugar coat things here. You need to be honest, but delicate, in your approach.

A Bonus Cancellation Letter: The Ending

The ending of the letter is by far the easiest part. All you need to do is sign off like you would with a normal letter.

Also, feel free to add another paragraph where you explain where people can get more information about the move. You can offer to meet with concerned staff members, for example.

Bonus Cancellation Letter

The point of the letter is to be informative, but some employees will have questions that need answered. Again, this is largely to help negate the downsides of a move like this. You don’t want your staff members spreading rumors that there will be layoffs because of the bonus cancellation or anything of that nature because it can make negative feelings spread throughout the organization like wildfire.

Bonus Cancellation Letter: The Final Say

When it comes to writing a bonus cancellation letter, remember to keep it short and to the point. Don’t try to insert small talk into the email because this will just waste and time potentially confuse your staff.

You need to get right down to business.

Start by explaining that the year has been hard on the business for whatever reason. You can go into as much detail as you like here, but the important thing is to attempt to keep everything brief. Say that is happening, say how it happened, and then move on to the next paragraph.

Over the next two paragraphs, you need to quickly explain that the business has had to enact cost-reducing measures to ensure that the company will not have to hold a layoff or RIF event. And, because of these measures, yearly bonuses will be canceled.

Once you do that, move to another paragraph and explain that this is a one-time move and that you hope to reinstate the policy next year when finances even out. This part of the letter should be hopeful but not a lie.

After that, all you have to sign off or give employees a way to reach out with questions.

If done properly, the letter should get the message across in a way that is easy to understand and digest.

Want to learn more about writing a bonus cancellation letter? Check out our free sample here:

Download our sample bonus cancellation letter here.

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