Common Types of Bonuses and How They Work

When your company offers a bonus, you feel like a boss. A bonus is compensation paid to eligible employees in addition to current wages and is a way for companies to encourage you to succeed. So, which bonus could be a possibility for you?

Types of Bonuses

Whether built into a discretionary fund or determined by the company’s success, here are the most common bonuses that exist today.

Discretionary Bonuses

Discretionary bonuses are tied to a specific quota, your level, or your performance — and are up to the manager to decide. Meaning, these bonuses aren’t always guaranteed!

Annual

Depending on when the bonus is paid out, you could receive it within the first few months of the year. You could be paid at the same time yearly, but companies usually set a timeline.

Sales Performance Incentive Fund (SPIFF)

If you go above and beyond at your company by working extra hours or helping with a special project, a one-time compensation could be granted.

Milestone

Companies can motivate you to reach goals tied to your work performance. When you achieve those metrics, you can earn a bonus payment — also called a task or mission bonus.

Holiday

After a year of hard work, employers recognize employees by giving bonuses to help during an expensive time of year. Gift cards, dinners, and parties are also common gestures.

Non-Cash

You could receive paid time off, vacation days, dedicated parking spots, or even an award.

Non-Discretionary Bonuses

These bonuses are outlined in your contract and vary by employer. By meeting the contract’s requirements, employers are required to give this bonus as part of your compensation package.

Sign-On

If you’re new to a job, companies may offer a sign-on bonus as an incentive. Be mindful of the terms and conditions of your contract, since some companies may ask you to repay the bonus if you leave before your first year.

Retention

During a merger or an acquisition, you could be offered a retention bonus to ensure your loyalty to the company. To receive this bonus, you may need to stay with the company for some time.

Referral

There might be an opportunity to refer someone for a role at your company. If a candidate is hired and stays on for several months, you could get anywhere from $1,000 to several thousand — depending on the company.

Profit-Sharing

Employers want to give you a sense of ownership in the company, so they distribute a percentage of the company’s profits based on your annual salary.

Stock Options

While another valuable financial asset, stock options allow you to have ownership in a company. You can purchase shares at a fixed rate and watch them grow in value as the company succeeds.

Which bonuses are you the most interested in getting at your next job? Start searching now.

Don’t let the career tips end there! Read about negotiating a sign-on bonus, the scoop on holiday bonuses, and what happens to your 401(k) after leaving your job.