What is meant by bonus?

Bonuses are a form of compensation paid to employees in addition to their base salary. They are typically awarded in recognition of good performance, but the amount, frequency, and criteria for receiving a bonus can vary depending on the company's policies, financial health, and size. While most businesses tie bonuses to performance, some companies also issue bonuses on special occasions, such as holidays, to all employees regardless of rank or individual performance metrics.

Why are bonuses important?

Giving out bonuses is a great way to show employees that the company values their services and appreciates their contributions. This can help to develop good morale and encourage employees to strive more for the company's common goals.

Major categories of bonuses

There are various types of bonuses, but most can be categorized as either discretionary or non-discretionary.

Nondiscretionary bonus

Unlike discretionary bonuses, which are unexpected and surprising, non-discretionary bonuses are anticipated by employees since they are promised in the work contract. The company provides employees with clear guidelines outlining the actions they need to take to become eligible for these bonuses. There are conditions and criteria that must be met, thus motivating employees to strive for achievement. Non-discretionary bonuses play a crucial role in encouraging employees to pull out their best performance. Here are some common types of non-discretionary bonuses:

• Sign-on bonuses
• Referral bonuses
• Performance bonuses
• Attendance bonuses
• Sales commissions
• Profit-sharing bonuses
• Holiday bonuses
• Anniversary bonuses