What is a performance-based bonus?
Employees who put in their best work and meet a defined organizational goal must be encouraged and recognized through a reward system. A performance-based bonus is a reward that accrues to employees who have done remarkably well in meeting a company target. Performance-based bonuses are given as monetary compensation beyond the salary, which is explicitly earned due to outstanding work.
A performance-based bonus is usually given after evaluating the company's performance after a set period or after completing a project (such as annually, biannually, or quarterly).
How is a performance-based bonus calculated?
A performance-based bonus must be measured fairly and accurately to ensure that all who deserve compensation are not left behind.
To calculate a performance-based bonus, the company simply has to set a target for the bonus (e.g., a 10% increase in sales). The employee's performance-based bonus is then calculated by multiplying the fixed percentage by the employee's salary. In this case, if the employee earns $30,000, then the bonus will be an extra $3000.
Who is entitled to receive a performance-based bonus?
All employees are entitled to receive a performance-based bonus, provided that they meet the criteria set to merit one. Once the management decides to offer performance-based bonuses, a target is set and the input of all employees involved will be assessed and noted. The set target should be realistic, measurable, attainable and time-based (SMART goals).