Bonuses and incentives
Resource summary
This factsheet was written and updated in December 2010 by Janet Egan, researcher and writer on reward and other employment issues.
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 – that is, they are not consolidated into basic pay – linked to individual, collective or organisational performance (or some combination of these factors).
Non-cash incentives are a means of incentivising higher performance among employees by the awarding of prizes or ‘gifts’, such as merchandise, travel or retail vouchers, associated with some performance measure (such as volume of sales).
It is important to draw a clear distinction between the concepts of cash incentives and bonuses, although the two terms are interlinked, and sometimes used interchangeably.
- Incentives aim to directly affect future employee behaviour or performance, usually via the setting of targets: if a specific target is met, the employee will receive a particular mandatory cash payment.
- Bonuses encompass a wider range of purposes and could be discretionary or non-discretionary. Like incentives, they may be used in an attempt to directly 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 performance.
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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
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