A bonus is an incentive paid to an employee for a job well done. A bonus payment is normally given to employees as part of their regular salaries or wage as an incentive for them to work more. It is also given as an alternative to poor performance or to reward good performance. It may be given in the form of a cash reward, gift or service. The frequency of bonus payments or rewards may vary according to the company rules.
Nondiscretionary bonuses are those that are given only upon a specific action or event such as a promotion, a new job or a wedding. They are not intended as an entitlement. Examples of these are merit and performance bonuses, honoraria, bonuses for outstanding customer service, and rehabilitation or training awards. Nondiscretionary bonuses can be used for any number of reasons and can often increase productivity, although some employers find them a distraction from their core business functions. They are commonly used as a source of short-term growth funding.
Performance bonuses are those awarded only for meeting certain requirements. Examples include advancement to supervisor, partial retirement, or completion of training or seminars. They are often used to motivate employees to perform to the best of their abilities. Unlike non-nondiscretionary bonuses, performance bonuses can be easily withheld if an employee does not meet the company’s standards.
Non-nondiscretionary bonuses are given to employees on a voluntary basis. They are intended to encourage individuals to work hard at their jobs. They are commonly used for new recruits, advancement to higher paid positions or for incentives given for meeting sales or marketing goals. In some cases, companies use these bonuses as a tool to retain and attract top talent by paying them better salaries or providing other forms of compensation such as a golden parachute or stock options. Some companies also use non-performance-based bonuses to entice key employees to remain with the company beyond the completion of a one-year contract.
In addition to monetary compensation, bonuses can be in the form of gifts or discounts on services, products or entertainment purchased by the company. It is not uncommon to see a company providing a car or travel allowance to top performers. Others may award employees with hotel stays during conferences or meetings, iPods or laptops, or tickets to events. Company recognition or advancement bonuses may be given for achieving excellent customer service, meeting production or performance targets, or exceeding companywide productivity averages.
Bonuses are typically offered to employees on a first-in-class basis, although some companies offer them on a limited basis to achieve a higher bonus limit. Typically, the greater the bonus amount, the more it will cost the company. Employees are usually eligible to receive these bonuses based on their performance over the course of a year. However, bonuses can also be rewarded based on the volume or frequency of an employee’s participation in company activities. Sometimes, bonuses are made based on the overall profitability of a company.
Some companies use bonuses to reward their top employees and motivate them to achieve even greater heights of success. These types of bonuses are sometimes called incentive bonuses. An incentive bonus is often given to a highly successful employee who tends to exceed the company’s goals. In order to qualify for an incentive bonus, an employee must meet a predetermined benchmark, such as number of sales or customers achieved. Some companies use bonuses to lure top talent away from competitors. If an employee perceives his performance to be better than the competition, he may seek employment elsewhere.
Companies that offer what is bonus money to their workers are not necessarily unethical, but it is important to understand the details of how these bonuses are awarded. Bonuses should not be a loophole to save a company money. If you are seeking a company that pays what is a bonus, it is important to verify that the amount being offered is legally-permitted and based on a financial plan that benefits the company. If you’re unsure of the specifics of your bonus pay, consult a lawyer.