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Factsheet:

Bonuses and incentives

Resource summary

This factsheet last updated in March 2016.

What are bonuses, cash incentives and non-cash incentives?

Bonuses and cash incentives are a form of variable pay based on the use of cash lump-sum payments linked to individual, collective or organisational performance (or some combination of these). They are not consolidated into base pay.

Non-cash incentives are a means of encouraging higher performance among employees by awarding prizes or ‘gifts’, such as merchandise, travel or retail vouchers, associated with some performance measure (such as sales volume).

It' important to draw a distinction between the cash incentives and bonuses, although the two terms are interlinked, and often used interchangeably by the media.

  • Incentives aim to influence future employee behaviour or performance, usually through the use of targets: if a specific target is met, the employee will receive a cash payment.
  • Bonuses cover a wider range of purposes and can be discretionary or non-discretionary. Like incentives, they may be used in an attempt to influence employee performance or behaviour to meet pre-set objectives, but they could also be used on a more ad hoc or retrospective basis to reward past achievements.

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  • What are bonuses, cash incentives and non-cash incentives?
  • Background and rationale for bonuses and cash incentives
  • Types and coverage of bonuses and cash incentives
  • Payment levels and recent developments in the use of bonuses
  • Background and rationale for non-cash incentives
  • Designing and operating non-cash incentive schemes
  • CIPD viewpoint
  • Useful contacts
  • References
  • Further reading

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