Performance Bonus | Meaning and Definition

What is a Performance Bonus?

A performance bonus refers to an extra compensation offered to the employees as a reward for accomplishing specific objectives or meeting a particular target. A performance bonus is an amount reimbursed beyond usual wages and is usually endowed post the performance appraisal and analysis of an assigned task finished by the worker over a certain period.

Not all enterprises furnish bonus plans while those that utilize an employee review process and an appraisal may establish a minimum score limit that an employee must meet or surpass to get considered for a performance bonus. Since this bonus is provided to employees on a performance basis, there is nothing like automatic entitlement.

Performance bonuses are a technique used to enhance the appeal of a position for attracting potential hires. Performance bonuses may be established monthly, annually, or biannually. Or the employer may even provide them only for particular periods, probably to leverage additional efforts for an important sales quarter or a specific project.

Why do companies provide performance bonuses?

The primary reason why employers offer performance bonuses to employees is to encourage them to work with dedication, commitment, and concentration. This directly contributes to better work culture and success of the business. Individuals who know that making extra efforts can bring in more money are likely to work with greater motivation. However, when a company’s performance goes down the employees pay the price with lower reimbursement. Certain performance-based examples would be goal-achieving bonuses, holiday treat bonuses, team play bonuses, and individual effort bonuses.