Canadian small business owners are sacrificing their paycheques and bonuses this year so they can recognize clients and employees, the American Express Small Business Holiday Monitor reveals.

In the survey of more than 400 small business owners, more than half said they will make some sort of sacrifice. One in four will not take a raise, 23% will forego their bonus, and 16% will even take a pay cut.

Even with these sacrifices, employers are being forced to cut back on their recognition of employees and clients this year.

Just 32% of small business owners will give their employees bonuses, down from 44% last year. They are also less likely to make charitable donations (33% vs 40%), give employee gifts (37% vs 42%) and give client gifts (31% vs 35%).

But small business owners recognize the importance of showing their appreciation to employees and clients, and are finding less expensive ways to do so. About half are still planning to treat their employees to a party or dinner this holiday season – the same proportion as last year. And 43% are planning to give employees extra time off over the holidays, up from 39% last year.

“Small business owners know that their employees are key to their company’s success,” said Howard Grosfield, vice president and general manager, small business services, American Express Canada & International. “They are willing to make sacrifices to ensure their employees feel valued and appreciated. We’ve monitored that trend throughout the recession and owners consistently put the needs of their staff and business first.”

Cost savings has become a top priority for small business owners during the recession. Roughly three quarters of respondents have introduced some form of cost reduction policies in the last year for themselves and/or employees.

That includes 48% who have instituted longer working hours, 47% instituting pay freezes, and 45% reducing spending allowances. Almost a quarter of firms have introduced pay cuts in the past year.

On a brighter note, while 47% of small businesses saw a drop in business this past year, more than two thirds are “optimistic” that their financial position will improve in the coming year.

“Clearly, 2009 has presented small business owners with a number of challenges, as evidenced by the half that have experienced a downturn in their business,” Grosfield said. “But small business owners have been careful to plan for the eventual turnaround, and it is encouraging to see they are hopeful about the future of their business.”