A bonus plan is one where the bonus is awarded after the fact and typically has very little or no incentive value. The employees typically come to see it as an entitlement.An incentive plan is a variable pay plan that is tied to some level of performance. The employee is rewarded with a payment that is predefined and non discretionary. The reward is paid when actual performance meets or exceeds predefined goals. incentive
| Any form of variable payment tied to performance. The payment may be a monetary award, such as cash or equity, or a nonmonetary award, such as merchandise or travel. Incentives are contrasted with bonuses in that performance goals for incentives are predetermined. Generally nondiscretionary and can be paid at any time of the year
| An after-the-fact reward or payment (may be either discretionary or nondiscretionary) based on the performance of an individual, a group of workers operating as a unit, a division or business unit, or an entire workforce. Payments may be made in cash, shares, share options or other items of value. In the context of sales compensation, a defined, pre-established amount of money to be earned for achieving a specified performance goal. Planned bonus amounts commonly are expressed as a percent of the incumbent's base salary, salary range midpoint, percentage of target cash compensation or incentive compensation, or a defined dollar amount. See also discretionary and nondiscretionary bonus
Bonus versus Incentive - What is the Difference?
Here is how our Glossary defines them:Incentive: Additional pay (above and beyond the base salary or wage) awarded to an employee, such as stock options or a contingent bonus plan, that is 'forward looking'.Bonus: Plans that award cash or other items of value, such as stock (or stock options), based on accomplishments achieved. While incentive plans are 'forward' looking' bonus plans are 'backward looking'. An incentive that is dangled to entice certain...
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