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What Is an Incentive Bonus?

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An incentive bonus is a payment above typical compensation that you receive after achieving a goal. It is different from a gift or sign-on bonus that isn't tied to a performance objective.

How It Works

Companies offer a variety of incentive bonuses, depending on your work environment. Retailers often reward successful managers with quarterly or annual bonuses when the store achieves revenue or earnings goals. A salesperson might receive an incentive bonus for selling a certain amount of a given product or service. Manufacturers might pay a bonus to a worker or crew that produces a predetermined number of goods in a particular month or quarter. Public agencies and governments use incentive bonuses to reward contractors that complete projects on-time or ahead of schedule.

Importance of Alignment

For a bonus to work as an incentive, it needs to push the worker to achieve better results than he otherwise would. Giving a bonus to a worker, team or leader for achieving status quo results is ineffective. Instead, the bonus should cause the recipient to invest more time and effort to do more. An incentive program should also appear fair to those affected. A salesperson in a more challenging territory may not think it is fair for a co-worker to have an easier track to getting a bonus.