Bonus payment
Encyclopedia
A bonus payment is usually made to employees in addition to their base salary as part of their wages. While the base salary usually is a fixed amount per month, bonus payments more often than not vary depending on known criteria, such as the annual turnover, or the net number of additional customers acquired, or the current value of the stock of a public company. Thus bonus payments can act as incentive
s for managers
attracting their attention and their personal interest towards what is seen as gainful for their companies economic success. They are widely used elements of pay for performance
and working well in many instances, including when a fair share of an employees participation in the success of a company is desired. There are, however, problematic instances, most notably when bonus payment are high. When they are tied to possibly short lived figures such as an increase in monthly turnover, or cash flow generated from an isolated marketing action, such figures often do not reflect a solid reliable win for a company, and they certainly do not reflect a managers lasting efforts to the companies best. On the contrary, such figures are prone to being adjusted or even manipulated to the benefit of those employees who are responsible for reporting them, while they are already planning their leave with a golden handshake
. Setting up good employment contracts may be a means to avoid that at least to some extent, but is astonishingly rare in reality.
The inverse of a bonus payment, that is when base salaries shrink on poor performance, this is called a malus
.
Incentive
In economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...
s for managers
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
attracting their attention and their personal interest towards what is seen as gainful for their companies economic success. They are widely used elements of pay for performance
Pay for performance (human resources)
Pay for performance, sometimes abbreviated "P4P", is a motivation concept in human resources, in which employees receive increased compensation for their work if their team, department or company reaches certain targets. , 75 percent of all U.S...
and working well in many instances, including when a fair share of an employees participation in the success of a company is desired. There are, however, problematic instances, most notably when bonus payment are high. When they are tied to possibly short lived figures such as an increase in monthly turnover, or cash flow generated from an isolated marketing action, such figures often do not reflect a solid reliable win for a company, and they certainly do not reflect a managers lasting efforts to the companies best. On the contrary, such figures are prone to being adjusted or even manipulated to the benefit of those employees who are responsible for reporting them, while they are already planning their leave with a golden handshake
Golden handshake
A golden handshake is a clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive loses his or her job through firing, restructuring, or even scheduled retirement...
. Setting up good employment contracts may be a means to avoid that at least to some extent, but is astonishingly rare in reality.
The inverse of a bonus payment, that is when base salaries shrink on poor performance, this is called a malus
Bonus-Malus
The term bonus-malus is used for a number of business arrangements which alternately reward or penalize .It is used, for example, in the call center and insurance industries.- Call centers :...
.