Compensation – Incentive vs Bonus

A bonus plan is unmatched where the bonus is awarded after the fact and typically has genuinely little or no inducing value. The employees typically grow to see it as an entitlement. An incentive plan is a variable tolerate plan that is tied to some level of per spirtance. The employee is repayed with a payment that is predefined and non discretionary. The reward is paid when actual death penalty meets or exceeds predefined goals. incentive Any form of variable payment tied to operation. The payment may be a monetary award, such(prenominal) as cash or equity, or a nonmonetary award, such as merchandise or travel.Incentives are contrasted with bonuses in that operation goals for incentives are predetermined. Generally nondiscretionary and can be paid at either time of the year bonus An after-the-fact reward or payment (may be either discretionary or nondiscretionary) based on the performance of an individual, a group of earners operating as a unit, a division or business u nit, or an entire workforce. Payments may be made in cash, shares, share options or a nonher(prenominal) items of value. In the scene of sales fee, a defined, pre-established amount of money to be earned for achieving a specified performance goal.Planned bonus amounts commonly are expressed as a portion of the incumbents base salary, salary range midpoint, percentage of target area cash wages or incentive wages, or a defined dollar amount. serve also discretionary and nondiscretionary bonus Bonus versus Incentive What is the Difference? here(predicate) is how our Glossary defines themIncentiveAdditional pay (above and beyond the base salary or wage) awarded to an employee, such as stock options or a item bonus plan, that is forward looking. BonusPlans that award cash or other items of value, such as stock (or stock options), based on accomplishments achieved.While incentive plans are forward looking bonus plans are backward looking. An incentive that is dangled to entice certain behaviors may include cash or prizes or perquisites or anything that activates the motivations of the performers. A bonus is something extra which is unremarkably cash and is always non-guaranteed. The ii scathe can obviously overlap job security in iridescent times can be an incentive for some people to work harder, while a contingent bonus premised on specific import results can also be an incentive to achieve those objectives.Cash dropped from the sky as a surprise is generally not considered incentive pay although such bonus gifts have disproportionately strong motivational effects, because the reward was not pre-announced and thus could not entice behavior changes. Even though discourteous and Jim have provided excellent definitions thatdraw a distinction between the two terms, Im sure that they will agree that there is a lot of discrepancy in the use of those terms across business, and even across the requital profession. Always look for the context that the terms are used in whatever you read or hear. Yep. Like you said, Paul. Term usages vary staggeringly between enterprises, industriesand sometimes between applications. As an extreme example, when Im in meetings and somebody says comp, I frequently have to confirm understanding and must claim if they are referring to * compensation (WorldAtWork) * comprehensive (municipal) * complimentary (gambing) * computation (math)Back in The Day, I spent a lot of time translating terms like these andperformancereviewand such things between disparte audiences who both meant and understood different things from the terms. In the context of sales compensation, WorldatWork defines a bonus primarily in contrast to a commission. In both cases in sales compensation, the reward is generally cognise in advance and offered for achieving a goal which also generally cognize in advance. The difference is that the commission is communicated as a piece of the process (e. g. , 2% of revenue, $5 per unit, 6% of margin dollars) whereas a bonus is a fixed incentive amount offered for achieving a specific objective, often with slight offered for lower achievement levels and more for higher levels.Most of the time, the amount of the commission at goal (or quota) is high if the quota is higher so if one sales individual has a $1M quota and another has a $1. 5M quota, then one has a target commission that is 150% that of the other. Whereas in a bonus world, the target incentive is fixed for the role (e. g. , $40k per year) and is paid for hitting quota, which may vary from one person to the next.Of course there are myriad nuances and variations, including the possibility of personalized commission rates which communicate a emailprotected bonus as if it were a emailprotected commission, etc. But that gets at the gist of it. All that said, I do have a current client with a business that is very weather-dependent (agrichemicals), to the extent that performance of the sales people can only be assessed retrospectively did they create value for the company, sell well, cement relationships with customers, and achieve square results given the opportunities that came their way during the year?Because the business itself is so volatile, the sales persons compensation must be less incentive-rich at target than most in similar roles, and performance can only be evaluated fairly in retrospect. However, this is only noteworthy because it is so highly unusual. Wherever possible (and it usually is possible), sales people have clear financial goals with formulaic compensation opportunities tied to how well they do against those goals.