There are times when a company’s financial circumstances dictate that salaries must be reduced, perks eliminated and bonuses forgone. Sharing the news with employees isn't easy. They might react with anger and resentment, even to a point where their productivity falls off. The best course of action is to be honest about the company’s position and rationale.

Review Contracts

If you have an employee contract that stipulates that non-discretionary bonuses are to be paid, you might be legally obligated to pay them regardless of your financial circumstances. Review contracts with your human resources representative or contact an employment law specialist to find out what your rights and responsibilities are in this situation.

Look for Other Rewards

If you're faced with telling employees bonuses will not be paid, look for ways to soften the blow by devising other perks to offset your announcement. For example, provide flexible scheduling and telecommuting options, if possible, or offer an extra casual dress day during the week. If you have company logo merchandise you give away at promotional events, hold prize drawings and give some things to staffers as well. This will demonstrate you're doing what you can despite poor financial circumstances.

Avoid Last-Minute Announcements

Many employees come to view bonuses as part of their overall salary and compensation packages, and perform their personal financial planning based on these figures. If you usually provide an annual bonus and you know it's not forthcoming this year, give employees as much advance notice as possible. This allows them time to adjust their personal budgets to reflect the lack of additional income.

Have Personal Conversations

Although many companies prefer to address employees as a group when it comes to important news, it really depends on circumstances at your particular company. It might be prudent to share the news individually with employees, particularly if bonus structures are different for different workers, or if only a small percentage of your staff participates in a bonus program. Be frank and honest about the reasons for the decision. Explain that it is an attempt to ensure the financial viability of the company and protect everyone's jobs.

Beware of Perceptions

If bonus structures remain intact for upper management, it can draw the ire of lower-ranking employees who feel a sense of inequality. If bonuses are not being eliminated company-wide, don't hide it from staffers. Rather, explain the discrepancy when you make your initial announcement. For example, you might say, "Per the terms of our contractual agreements with upper-level managers, bonuses will remain for supervisors, directors and vice presidents." This move shows you aren't hiding anything, and are fulfilling legal obligations rather than playing favorites.