What is a typical bonus formula?

A common bonus formula is Target Bonus × Performance Factor, where the performance factor reflects KPI attainment or scorecard results, often with floors and caps to control cost and ensure fairness.

Bonus Compensation | Types, Strategies & Examples

Q: How is a bonus plan different from commission?

A bonus plan typically pays a lump sum based on results over a period, such as a quarter or year, while commission is an ongoing rate tied directly to individual sales or revenue as deals close.

Q: What should every bonus policy include?

A bonus policy should clearly describe eligibility, KPIs, performance periods, proration rules, caps and floors, clawback rules if applicable, approval workflow, payout timing, and data sources for calculations.

Q: What is an annual bonus plan (AIP)?

An annual incentive plan is a company-wide or team-based bonus program that pays out after year-end based on financial results and individual or team performance, usually linked to a formal scorecard.

Q: Can Bentega automate bonus calculations?

Yes. Bentega centralizes bonus rules and KPIs, calculates payouts automatically, and provides clear dashboards and audit trails so HR, finance, and managers can run bonus cycles with less manual work and fewer errors.

What Is a Bonus Plan?

A bonus plan is a structured way to pay one‑time or periodic rewards based on results. Bonuses can be tied to individual KPIs, team goals, or company performance. When designed well, they reinforce priorities without permanently increasing fixed payroll.

Why companies use bonuses

Focus attention on the few KPIs that matter.
Share upside when targets are met.
Retain key people without inflating base pay.

For smaller teams, see how these principles translate in practice in our guide to bonus structures for small companies.

When bonuses work (and when they don’t)

Bonuses work when KPIs are clear, measurable, and within the employee’s influence. They fail when metrics are vague, goals are unreachable, or payouts feel opaque or unfair.

Bonus Types (with Examples)

Below are common bonus types, when to use them, and a quick example to make the math concrete.

Performance bonus (KPI‑based)

Use when:
You want to align individual roles to 1–3 measurable KPIs.
Typical metrics:
Quota attainment, NRR, CSAT, backlog reduction.

For more structures and examples, see our article performance bonuses: how companies motivate employees.

Company‑wide/annual bonus (AIP)

Use when:
You want everyone sharing in annual outcomes.
Mechanics:
Scorecard (e.g., revenue, EBITDA) with a company multiplier.
Example calc:
Target = 8% of base × scorecard 90% × company multiplier 1.1 → payout = 7.92% of base.

For a full breakdown of how annual incentive plans work, including scorecards and weighting, read What is an annual incentive plan? quick guide.

Signing & retention bonuses

Use when:
Attracting scarce talent or retaining through a critical period.
Policy notes:
Repayment (clawback) if departing within X months.

For pros, cons, and real examples, see how signing bonuses work: pros, cons, and best practices.

Example calc:
€10,000 sign‑on paid at start; clawback 100% if leaving <12 months; prorated thereafter per policy.

Team/department bonuses

Use when:
Collaboration matters more than individual heroics.
Split methods:
Equal split, weighted by level, or weighted by contribution score.
Example calc:
€50,000 pool × team score 96% → €48,000 distributed per weights.

Executive bonus plans

Use when:
You need balanced scorecards plus governance.
Design:
Financial + strategic + risk metrics; caps and deferral/holding periods.
Example calc:
Target 40% of base × scorecard 102% × cap 150% → payout = 40.8% of base (subject to cap).

Related:
Compare short‑term contests in the SPIF guide.

For more examples and governance considerations, explore executive bonus plans: structuring management incentives.

Executive Bonus Plan

Unlock the potential of your leadership team with our Executive Bonus Plan — a flexible incentive solution designed to attract, reward, and retain top executives. This plan enables companies to provide key decision-makers with valuable bonuses, often in the form of cash or life insurance benefits, without the administrative burden of complex retirement plans.

For example, a business might offer a bonus to help an executive purchase a life insurance policy, increasing their sense of financial security while creating a powerful loyalty incentive. Alternatively, bonuses can be tied to performance milestones, ensuring your organization’s growth objectives are directly aligned with executive compensation.

With an Executive Bonus Plan, you demonstrate a commitment to your leaders’ long-term success, while motivating excellence at every level.

Bonus Structure: Eligibility, KPIs & Payout Rules

A clear structure prevents disputes and keeps costs predictable.

Eligibility & proration (probation, leave, start/end dates)

State eligibility windows explicitly: probation periods, mid‑period hires/terminations, parental/long‑term leave, and how partial periods prorate (e.g., based on days employed in period).

Setting KPIs and thresholds

Choose 1–3 KPIs per role. Define threshold, target, and stretch with exact data sources (e.g., CRM field, finance ledger). Publish definitions so employees know where numbers come from.

For help choosing and benchmarking those measures, see our KPIs and metrics guide and the article on setting effective KPI benchmarks and targets.

Cap, floor, and clawback

Floor: Avoid zero payouts for minor misses (e.g., 80% attainment yields 20% payout).
Cap: Control cost risk at extreme over‑performance.
Clawback: For compliance breaches, early departures, or material corrections.

Approval workflow & documentation

Assign policy owner(s), approval steps, and communication plan. Keep one live policy page with examples and FAQs.

Bonus Formula & Calculation Examples

Most plans follow one of three patterns. Use these templates and adapt the parameters.

1) Attainment‑based formula

Formula:
Payout = Target Bonus × Attainment % × Payout %

Worked example:
Target bonus 10% of base; attainment 105%; payout curve grants 110% at over‑target → payout = 10% × 1.05 × 1.10 = 11.55% of base.

2) Tiered formula

Typical tiers:

0–90% attainment → 0% payout
90–100% → linear to 100%
100–120% → 1.5× rate (accelerator)

Worked example:
Hit 112% → payout 118% of target (per curve). If target bonus is 8% of base → payout = 9.44% of base.

3) Profit‑ or scorecard‑based formula

Formula:
Payout = Target × (Scorecard Score ÷ 100) × Company Multiplier

Worked example:
Target 15%; scorecard 88; company multiplier 1.2 → payout = 15% × 0.88 × 1.2 = 15.84% of base.

Tax & timing (informational only): Outline when bonuses accrue vs pay, and that taxation varies by jurisdiction. Encourage employees to review personal circumstances with a tax professional.

Bonus vs Commission (What’s Different?)

Item	Bonus	Commission
Trigger	KPI or company result	Individual sales activity
Frequency	Monthly/quarterly/annual	Ongoing (per deal/period)
Typical formula	Target × Attainment × Payout%	Rate × Revenue/Profit
Best for	Roles beyond sales; company programs	Sales and revenue roles

To see how bonuses, commissions, and other incentives fit together, read types of incentive pay: which one is right for your business?.

Deep dive on commission models: Sales Commission Structure.

Examples of Bonus Plans by Role

Role	Bonus Type	Objective
Sales Manager	Quarterly performance bonus	Reward team achievement
Customer Success Manager	Retention bonus	Incentivize renewals
Marketing Specialist	Campaign ROI bonus	Reward measurable impact
Finance Analyst	Annual profitability bonus	Align with company success
Software Engineer	Innovation or delivery bonus	Encourage project excellence

💡 See related content → Incentive Compensation Guide →

Bonus Examples

To better understand how bonuses work, here are a few real-world examples:

A tech company offers a $10,000 signing bonus to a software engineer to secure top talent in a competitive market.
A sales team receives quarterly performance bonuses based on meeting revenue targets.
A manufacturing firm implements an incentive bonus for reducing defects and improving production efficiency.
A company provides an executive bonus plan that includes stock options and long-term incentives to retain leadership talent.
A retail business gives employees holiday bonuses as a token of appreciation for their hard work throughout the year.

Implementation Checklist

Define objective & KPI(s) per role; set thresholds and a cap.
Write eligibility, proration, and clawback policy.
Simulate cost at 80/100/120% attainment.
Publish the plan and numeric examples in one page.
Launch in Bentega; enable real‑time dashboards and monthly sign‑offs.
Review quarterly; adjust KPIs and thresholds.

If you’re rolling bonuses into a broader mix of rewards, follow our employee incentive plan: design an effective program guide for a full rollout playbook.

How is a bonus plan different from commission?

A bonus is a periodic reward tied to KPIs or company results; commission is an ongoing rate tied to individual sales.

What’s a typical bonus formula?

A common pattern is Target Bonus × Attainment × Payout%, with a cap to control cost.

What should every bonus policy include?

Eligibility window, proration rules, caps/floors, clawbacks, approval workflow, payout timing, and data sources.

What is an annual bonus plan (AIP)?

A company‑wide program that pays based on annual results and individual or team scorecards.

Can Bentega automate bonus calculations?

Yes. Bentega ties rules to real data, calculates payouts automatically, and provides approvals and audit trail. See product or book a demo.

Create and manage bonus plans for any role.
Link rewards directly to KPIs and company results.
Eliminate manual errors and disputes.
Give employees full transparency into earnings.

Bonus Plans: Types, Structure & Examples