Bonus

Meaning & Definition

Bonus refers to any extra compensation an employee receives either in addition to the regular salary or instead of receiving regular salary if certain goals are met. Usually, bonuses are paid as part of an employee’s compensation package for performance, meeting predefined business objectives, for being part of a successful organisation, or by law. Bonus payments can occur monthly, quarterly, annually or at the company’s policy and eligibility requirements.

Important features of Bonus

• Employees have a greater incentive to reach higher levels of performance and productivity when bonuses are available.
• Bonuses also act as rewards for employees who have achieved set goals within their individual, team or organisational area.
• Companies can use bonuses as a tool to lead and retain top talent with competitive salaries.
• Employees are generally happier at work and more satisfied with their jobs when they have access to bonus incentives.
• When bonuses are tied to the achievement of certain business objectives, employees are driven to work on behalf of the corporation.

Compliance and Policy Considerations

Depending on the jurisdiction, bonuses may be regulated under the country’s statutory provisions regarding eligibility and wage limits.

Policies should define:

• How to calculate eligibility for bonuses
• Frequency of payment
• What conditions need to be met for a bonus payout upon termination of employment

Clear bonus policies help both the company and employees understand what to expect from bonus payments. Compliance with the applicable employment law regulations regarding such payments will promote transparency between the employer and employee.

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