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Bonus vs Salary

Bonuses are a big feature in many people’s yearly compensation—the windfall can be a little cache used to treat yourself to a nice dinner or if you’re lucky, big enough to allow for a down payment on your home. Bonuses certainly come in all shapes and sizes—some are based on performance, some based on longevity, and some based on the time of year. According to CNBC, 78 percent of businesses offered year-end gifts or bonuses at the end of 2014, though the average wasn’t the $164,530 or so that Wall Street folks averaged–most of those companies surveyed handed out small gifts valued at $100 or less.

So what role do bonuses play in total compensation? The role is usually two-fold: bonuses tend to be tied to an individual’s performance and also to how well a company is doing with respect to its financial targets. The incentive is also helping to fulfill two needs: work to achieve your personal goals as well as your organization’s larger objectives and if all goes well, there could be a nice pot of gold at the end of the rainbow for you.

There often is a debate between salary increases and bonuses and which increase is better financially (for either the individual or company) and which incentivizes employees more. According to various research studies, the difference in compensation between “okay” and outstanding performance needs to be around 7-10% for money to serve as an impactful incentive for performance, however salary raises or “merit” increases rarely fluctuate that highly between average and high performers. Bonuses are opportunities for organizations to more efficiently help compensate and recognize quality performance to a point that can continue to motivate and energize in ways cost-of-living salary increases do not.

There are many ways bonuses and other non-salary compensation can be administered, and it’s helpful to gain a perspective on how your organization is approaching bonuses for its staff and decide how important bonuses are to you.