Benefits and Compensation, Talent

Types of Bonuses You May Not Be Utilizing

Employee bonuses are often used as tools for motivation and retention. In some cases, they’re used as a means to keep base pay stable while still giving employees recognition. When salaries are increasing but salary budgets are not keeping pace, bonuses can be a way to offer recognition without changing the year-to-year obligations if circumstances or performance changes.

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Let’s take a look at some of the many types of bonuses and raises employers offer to employees:

  • Longevity bonuses or raises, which are awarded specifically to employees who have been with the organization for a long time. These are often used to ensure that employees with longer tenure are compensated more than those with less experience.
  • Sign-on bonuses, which are paid to new hires as an incentive to take the job offer. These are often given as incentive when the salary being offered does not quite match competing offers or when there is a lot of competition for the new hire.
  • Automatic increases, which can be in the form of raises or bonuses, that are simply tied to the passage of time (but not necessarily only for long-term employees like longevity bonuses are, above). This has the added advantage of helping to keep pay in line with increasing market rates.
  • Project-based bonuses, which are awarded upon completion of specific projects or project goals, especially for large or arduous projects.
  • Performance-based bonuses, which are only awarded to individuals who meet preset performance goals.
  • Profit-sharing bonuses, which are paid when the company reaches specific levels of profitability to trigger the bonus payment.
  • Safety-related bonuses, paid when safety goals are met. (Note: Be careful not to incentivize hiding accidents or injuries.)
  • Goal-oriented bonuses at the organizational level, which are bonuses based on the organization’s achieving its goals—for example, meeting production levels, product improvements, an increase in the number of new customers, or other milestones.
  • Holiday or year-end bonuses, paid, as the name indicates, around the annual holiday period or year end.
  • Referral bonuses, which can be paid to employees who refer new applicants who get successfully hired and stay with the organization for a specified time period.
  • Spot bonuses, which are usually awarded to recognize specific employee achievements and typically not known about in advance by the employee.
  • Retention bonuses, which are usually reserved for turbulent times, such as during mergers or layoffs, when it’s important to keep consistency among core staff. These bonuses can encourage individuals to stay at least until after the bonus period, which can help the organization keep stability and meet goals and deadlines in the interim.

Bonuses can be paid as cash or as extra onetime paid-time-off (PTO) awards or compensation days. They could also be paid in the form of gift cards or experience awards—which may feel more personal and show employees they’re valued, especially if the gift is customized to their interests.

Bonuses can be used as tools to positively impact productivity or as an employee retention tool when raises aren’t available or simply to show recognition or thanks. What types of bonuses does your organization use?

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.