1 mins readPerformance Bonus is a discretionary or contractual payment made to an employee in addition to base salary, awarded for meeting or exceeding predefined performance targets.
What is a Performance Bonus
A performance bonus rewards individual, team, or company achievements. It can be one-time or periodic and ties cash compensation to metrics such as sales, productivity, quality, or goal completion. Employers use it to drive behaviour, retain talent, and align efforts with organisational objectives.
How it Works
Bonuses are typically linked to measurable criteria like KPIs, performance ratings, or milestone completion. Payout rules appear in bonus plans or employment contracts and are processed through payroll with appropriate tax and compliance handling.
Practical Use and Examples
Common scenarios include:
- Sales teams receiving quarterly bonuses for exceeding revenue targets.
- Engineers earning project completion bonuses for on-time delivery and quality standards.
- Companywide annual bonuses based on profitability or EBITDA.
Example: A 10 percent bonus on base salary for meeting annual performance goals.
Related HR Concepts
Closely related terms include incentive pay, merit pay, variable pay, commission, bonus plan, KPI, performance appraisal, compensation strategy, payroll, and compliance. Understanding these helps design fair and effective reward programmes.