Think about the last time a checkout clerk offered you a bonus discount on an item or you came across a bonus feature in a movie. You probably felt pretty great, right?
People love the idea of bonuses because “extra” or “free” stuff is hard to pass up. It’s why we get excited as consumers, and also why they intrigue us when considering a job offer.
But bonuses come with a lot of caveats, too. Understanding how a bonus works and why they’re provided in the workplace can help you choose between a job with poor compensation and one where you’re set financially. We’ll break them down so you come out feeling like a pro.
A bonus is “a form of compensation that’s not guaranteed and that is usually paid after the completion of a certain event,” says Adi Dehejia, The Muse’s Chief Financial Officer.
Bonuses come in many shapes and sizes (all of which we’ll explain later), but generally speaking they’re performance-based, meaning a company distributes them based on how an employee or group of employees contributes to team or company goals—typically revenue-based ones.
That said, a lot of bonuses are discretionary, meaning rather than the bonus being tied to a specific quota, your level, or your performance, a manager simply gets to decide who is and isn’t worthy of one, as well as how much the bonus is.
As you can imagine, this makes bonuses a pretty complicated subject for companies and employees alike.
What Motivates Companies To Offer Bonuses?
Often bonuses are provided because that’s what the market tells companies to do. If other organizations of similar size, industry, or geography are offering their employees bonuses, a company may feel obligated to do the same to compete for good talent. This is why you’ll rarely find a sales role without a bonus structure.
They also want to hire people who they know are going to perform, and when there’s a reward for output you’ll attract a certain kind of person.
But the main reason employers are drawn to bonuses is because they encourage employees to work hard to help the company succeed. “They want to align incentives—like, ‘You do well if the company does well,’” says Dehejia. And it tends to pay off—people who know they can make more money by bringing in more revenue, whether directly (like sales) or indirectly (like marketing or executive leadership) are going to be highly motivated to do so.
Read More = https://www.themuse.com/advice/how-bonuses-work