Investor's wiki



What Is a Bonus?

A bonus is a financial compensation that is far in excess of the normal payment expectations of its recipient. Companies might award bonuses to both passage level employees and to senior-level executives. While bonuses are generally given to exceptional workers, employers sometimes give out bonuses extensive to fight off envy among staff members.

Bonuses might be hung as incentives to prospective employees and they can be given to current employees to reward performance and increase employee retention. Companies can convey bonuses to its existing shareholders through a bonus issue, which is an offer of free extra shares of the company's stock.

Grasping Bonuses

In workplace settings, a bonus is a type of compensation an employer provides for an employee that complements their base pay or salary. A company might utilize bonuses to reward achievements, to show appreciation to employees who meet longevity milestones, or to entice not-yet employees to join a company's positions.

The Internal Revenue Service (IRS) considers bonuses as taxable income, which means employees should report any bonuses they receive while filing their taxes.

Incentive Bonuses

Incentive bonuses include signing bonuses, reference bonuses, and retention bonuses. A signing bonus is a monetary offer that companies reach out to top-ability candidates to entice them to accept a position โ€” especially in the event that they are overall forcefully sought after by rival firms. In theory, paying an initial bonus payment will bring about greater company profits down the line. Signing bonuses are regularly offered by professional games groups endeavoring to draw top-level competitors from competitive clubs.

Reference bonuses are introduced to employees who recommend candidates for open positions, which at last prompts the hiring of said candidates. Reference bonuses incentivize employees to allude prospects with strong hard working attitudes, sharp skills, and positive perspectives.

Companies offer retention bonuses to key employees, with an end goal to encourage loyalty, especially in downward economies or periods of organizational changes. This financial incentive is a statement of appreciation that tells employees their positions are secure over an extended time.

Performance Bonuses

Performance bonuses reward employees for exceptional work. They are customarily offered after the completion of projects or toward the finish of fiscal quarters or years. Performance bonuses might be given out to people, groups, offices, or to the expansive staff. A reward bonus might be either a one-time offer or a periodic payment. While reward bonuses are typically given in cash, they sometimes appear as stock compensation, gift cards, time off, holiday turkeys, or simple verbal articulations of appreciation.

Instances of reward bonuses include annual bonuses, spot bonus awards, and milestone bonuses. Spot bonuses, which reward employees who merit special recognition, are micro-bonus payments, typically valued at around $50. Workers who reach longevity milestones โ€” for instance, 10 years of employment with a given firm โ€” might be recognized with extra compensation.

A few organizations build bonus structures into employee contracts, where any profits earned during a fiscal year will be shared among the employees. As a rule, C-suite executives are awarded bigger bonuses than lower-level employees.

Bonus Inflation

While bonuses are customarily issued to high-performing, benefit producing employees, a few companies opt to issue bonuses to lower-performing employees too, even however organizations that do this will quite often develop all the more slowly and create less money. A few organizations resort to distributing across-the-board bonuses with an end goal to suppress jealousies and employee backlash. All things considered, it's more straightforward for management to pay bonuses to everyone than to clear up for lacking performers why they were denied.

Moreover, it tends to be difficult for an employer to evaluate their employees' performance success accurately. For instance, employees who fail to make their activity quotas might be exceptionally diligent employees. In any case, their performance might be hampered by quite a few conditions beyond their control, such as undeniable production delays or an economic downturn.

Bonuses in Lieu of Pay

Companies are increasingly replacing raises with bonuses โ€” a trend that vexes numerous employees. While employers can keep wage increases low by pledging to fill pay gaps with bonuses, they are under no obligation to follow through. Because employers pay bonuses on a discretionary basis, they might keep their fixed costs low by withholding bonuses during slow years or recessionary periods. This approach is much more suitable than increasing salaries annually, just to cut wages during a recession.

Dividends and Bonus Shares

Notwithstanding employees, shareholders might receive bonuses looking like dividends, which are carved from the profits realized by the company. In lieu of cash dividends, a company can issue bonus shares to investors. In the event that the company is short on cash, the bonus shares of company stock give a way to it to reward shareholders who expect a customary income from possessing the company's stock. The shareholders may then sell the bonus shares to meet their cash needs or they can opt to hold onto the shares.


  • A bonus is a financial compensation that is far in excess of the normal payment expectations of its recipient.
  • Bonuses might be awarded by a company as an incentive or to reward great performance.
  • Typical incentive bonuses a company can give employees include signing, reference, and retention bonuses.
  • Companies have different ways they can award employee bonuses, including cash, endlessly stock options.