There are two main types of performance based bonuses:
short-term schemes, like bonus payments or sales commission
long-term schemes, like company shares (for more information on this, read Employee share schemes)
Many employers offer bonuses to people based on either their own performance throughout the year, the company’s performance, or a combination. When offering performance related bonuses, it is important to define performance criteria (eg what level of performance will result in what bonus) from the outset.
Most employers determine performance based bonuses are usually based on the following factors.
You may receive a bonus if you meet or exceed your key performance indicators (KPIs) or other goals set by management. Other skills such as leadership, communication and problem solving may also be rewarded.
Generally, if you’re on a higher salary (ie in a higher pay grade), then you’ll be eligible for a higher bonus. Bonuses are usually a percentage of your overall salary, with more senior employees receiving a higher percentage. This sort of bonus pay recognises that senior employees normally will have an impact on the company’s overall performance.
A company may only financially be able to award bonus pay if the company reaches its own financial goals. Therefore, even if you as an employee meet all your KPIs, the company may not pay you a bonus unless they meet their goals as well.