What are the different types of bonuses?

A sign-on bonus is a one-time bonus given to newly hired employees as part of the onboarding process. Originally, this type of bonus was given to athletes upon joining sports teams. But in more recent years, companies have started giving this to new hires as an incentive. Usually, this is offered to mid-level professionals and is equivalent to five to ten per cent of the base salary. 

Signing bonuses may or may not be the most advantageous option for employees. Sometimes, employees can have a more competitive package if they negotiate a higher base salary instead of a sign-on bonus. So, avoid blindly agreeing to this perk and make sure you acknowledge the cost.

2. Referral bonus

A referral bonus is awarded to an employee who successfully recommends a suitable candidate for their organisation. Referral bonuses vary from company to company. Some will give incentives to candidates whom recruiters can get in touch with for shortlisting. Other companies will provide a referral bonus for every successful candidate hired.

If the company you are applying for has multiple openings and you know people who might be interested in these jobs, you can open a discussion about referral bonuses. 

3. Retention bonus 

The retention bonus is given to employees to encourage them to stay in the company for a specific period. This bonus is noticeable when you review the total compensation. The rate given is up to the employer, but it usually begins at 10% of your proposed salary. The length of time you are expected to stay depends on the company. 

While the retention bonus is more common in large companies, it is definitely an incentive you can negotiate with your employer. This type of employee bonus is especially beneficial for workers who plan to stay in the job for the foreseeable future. If the job opening is highly competitive, you can also leverage this to negotiate a retention bonus. 

4. Sales commission 

Employees working in sales typically receive commissions depending on how much they can sell. If you are applying for a sales position, you can negotiate a higher commission rate. You can reason that if your basic salary is low, you should receive a higher commission rate since this is dependent on your sales volume. 

5. Profit-sharing

In profit-sharing, employers give a certain percentage of the profit or revenue that the company earned at the end of a fiscal year. For employers, profit-sharing is a fantastic way to motivate employees to perform well throughout the year because everyone will benefit from it.

This type of employee bonus depends on two things: your current compensation (as it uses the pro-rata method) and the company’s earnings when the fiscal year closes. The higher the company’s revenue, the higher each employee’s bonus when the profits are divided. 

6. Performance bonus

Performance bonuses are given based on your annual evaluations or hitting targets set by the company. The rate and more specific metrics are up to the employer. If you try to discuss this bonus, you can also ask how often the company provides this. Some award performance bonuses every quarter, while others give them only after annual performance appraisals. 

7. Holiday bonus

The holiday bonus is also known as the 13th-month salary. It is an employer’s way of recognising the hard work of everyone in the organisation. It can keep spirits high, especially during the stressful time of the holiday season.

The rate of your holiday bonus will depend on your employer. In some cases, it can even be worth a month’s salary. 

8. Meal allowance 

Also known as meal subsidy or food stipend, meal allowances are an additional benefit that you can negotiate. Companies can distribute this as cash, along with your salary. This extra benefit is supposed to cover your meals and other food expenses. The additional funds from this type of bonus can be helpful when you are stocking up on groceries.  

9. Petrol or transportation allowance

Aside from meal allowances, transportation incentives are given to cover the cost of travelling to and from your workplace. This is a variable type of allowance that you can discuss with your employer. 

10. Spot bonus 

A spot bonus is given to an employee for completing a specific task, such as creating a new process or streamlining an existing procedure. Given this nature, this type of employee bonus is not always offered. During the preliminary interview, you can ask the employer if they have a history of giving spot bonuses for exemplary work.

11. Mission or task bonus 

The mission bonus is similar to the spot bonus, except the former is tied to a specific task or project. For example, if a group of developers finish making an app and release it to its target market on time, their employer may give them a mission bonus.

You may ask the employer if they have a history of giving this type of bonus or would likely provide one for future projects. If it is not something they commonly do, you can inquire about their willingness to allocate such once you are onboard and handling strict deadlines projects. 

Summary

If you plan to negotiate your salary with employee bonuses, remember to bring this conversation to the table in the last stages of the application. Discuss the possibility of a bonus before you sign a job offer. Be clear with your desired bonus type and rate. 

Employee bonuses are not the only way to negotiate your salary before signing on. You can put other benefits on the table, such as healthcare insurance, gym membership perks, and more paid leaves (e.g. more extended maternity and paternity leaves) if they apply to you. But regardless of the benefit or bonus that you decide to leverage on, you must learn the best ways to counter low salary offers. The worst thing that can happen in the negotiation process is that the employer says no. 

Learning how to negotiate your salary is an essential aspect of job hunting and can help you improve your business communication skills. Now that you are more familiar with other ways to increase your salary in the hiring process, let the search for the #JobsThatMatter to you begin. Update your profile at JobStreet and find work that will bring you passion and purpose. Finally, visit the Career Resources Hub for more expert tips and advice on how to increase your salary.

If you offer staff extra pay for performing to a certain level, they’ll feel well rewarded and try harder to reach that level in future.

Employee bonus and reward schemes are valued at many companies. They’ve declined in use since the financial crisis of 2008, but bonuses are still the most popular type of individual performance-related scheme in the UK (CIPD 2015).

But ‘bonus’ is a broad term, which covers several kinds of employee reward and incentive. Which is right for your organisation? If you’re thinking of creating or renewing your employee bonus scheme, here’s what you need to know.

Types of bonus and reward schemes

Discretionary and non-discretionary bonuses

As the name suggests, discretionary bonuses are paid at the discretion of the employer. This means:

• Bonus entitlement isn’t written into employees’ contracts
• The standard of performance required to trigger a bonus, and the amount of bonus paid, are flexible
• For discretionary bonuses to create an incentive, employees must trust they will receive a bonus for good performance

Non-discretionary bonuses are based on defined performance criteria.

• Bonus entitlement might be written into the employment contract
• Employees know how well they need to perform to receive their bonus
• You might be legally obliged to pay bonuses when criteria are met, even if other factors cause a strain on finances

Reward achievement, or influence future behaviour?

Another key difference is that discretionary bonuses often reward success already achieved, while non-discretionary bonuses are often used to incentivise future performance.

Discretionary bonuses are often paid as an annual reward to employees following a successful year. Employees feel rewarded and valued by your organisation.

Non-discretionary bonuses are paid on an agreed schedule, when employees hit a defined target. Employees feel extra motivation to reach the goals you’ve set.

Both types of scheme can help support talent retention and acquisition.

Individual, team and company-wide bonuses

Bonuses don’t have to recognise individual performance.

• Individual bonuses may be best for incentivising employees to reach individual targets, such as sales targets
• Team bonuses may be suitable when your workforce is split into teams with defined goals
• Company-wide bonuses may be most suitable for rewarding strong annual performance. Company-wide bonuses are usually discretionary, since many factors can affect an organisation’s ability to pay.

Cash and non-cash bonuses

While we often think of bonuses as being paid in cash, they don’t have to be. Non-cash options include:

• Vouchers or pre-paid cards, which can offer good value when purchased in bulk
• Employee awards that recognise exceptional individual performance and may be accompanied by cash or a voucher
• Gifts such as electronic devices or luxury items

Which companies use employee bonus and reward schemes?

Individual bonus schemes are most popular at private sector service firms (64% use them) and manufacturing and production companies (55%). In the public and voluntary sectors, less than half of organisations use them on average.

Employers are much more likely to offer bonuses to managers and professionals (53% receive them) than other employees (45%, CIPD 2015).