Glossaire
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An incentive bonus refers to a form of monetary reward provided to employees for achieving specific goals or outcomes beyond their regular salary or wages. These bonuses are designed to motivate employees, enhance performance, and align individual efforts with organizational objectives.
An incentive bonus is a form of compensation provided to employees as a reward for achieving specific goals or performance targets set by their employer. It serves as an additional incentive to motivate employees to work harder and achieve desired outcomes.
A performance incentive bonus is a type of bonus awarded to employees based on their individual or team performance. It is typically tied to achieving predetermined performance goals, objectives, or key performance indicators (KPIs). This bonus is designed to motivate employees to excel in their roles and contribute to the organization's success.
Different types of incentive bonuses include:
Yes, incentive bonuses are considered taxable income by the IRS. Whether it's a one-time performance bonus, a sales incentive, or a year-end reward, any incentive bonus paid to an employee is subject to federal income tax, Social Security, and Medicare taxes.
Incentive pay is sometimes considered a bonus but not always.
Incentive pay is variable pay tied to predefined performance goals (e.g., sales targets, quality, safety, on-time delivery). It can be commission, SPIFFs, piece-rate, or goal-based payouts paid monthly/quarterly.
A bonus is a one-time payment that may be tied to performance or discretionary events (e.g., holiday bonus, spot award, company profit share).
Rule of thumb: All bonuses are variable pay, but incentive pay is goal-driven and usually planned in advance; bonuses can be discretionary or performance-based.
Incentive and bonus are related but not the same.
Rule of thumb: Incentives are predefined and contingent on meeting targets; bonuses can be discretionary or performance-based and are often paid after results are known.
Sales is a target-driven function where motivation directly impacts performance. Incentive bonuses help maintain high levels of engagement, boost productivity, and align individual efforts with company goals. When structured well, they drive healthy competition, reward top performers, and foster a culture of achievement.
Incentive bonuses are typically taxed as supplemental wages. Employers may choose to withhold taxes from the bonus using either the percentage method or the aggregate method. The percentage method applies a flat tax rate to the bonus amount, while the aggregate method combines the bonus with the employee's regular wages and withholds taxes based on the total amount.
Calculating an incentive bonus depends on the type of bonus plan and the performance criteria set by the employer or sales organization. Here’s a step-by-step breakdown of common approaches:
Automating the calculation process through incentive software helps reduce errors, ensures compliance, and provides transparency for all stakeholders.
Sales leaders set measurable objectives tied to business outcomes. When a sales rep achieves or exceeds these benchmarks, they receive an incentive bonus as a reward. The process often involves a clear structure outlining who qualifies, the performance criteria, and the bonus calculation method to ensure transparency and fairness.
