Types of Employee Bonuses

Employees are the backbone of every successful company and recognizing their contributions with bonus pay is a great way to reinforce that they are valued. This recognition not only boosts morale but can also drive employees to work hard and reach company goals.   

The term ‘bonus’ is a broad term, which covers several kinds of employee rewards and incentives. But which is right for your organization?  

If you’re thinking of creating or updating your employee bonus payment program, here’s what you need to know. 

Types of employee bonuses and rewards

Discretionary bonuses 

As the name suggests, discretionary bonuses are paid at the discretion of the employer. This means: 

• Bonus entitlement isn’t written into employees’ contracts 

• The standard of performance required to trigger a bonus, and the amount of bonus paid, are flexible 

• For discretionary bonuses to create an incentive, employees must trust they will receive a bonus for good performance 

Examples of discretionary bonuses: 

• Performance-based bonuses paid to reward milestone accomplishments  

• Spot bonuses awarded for exceptional achievements 

•  Holiday bonuses typically given during the festive season, in December 

Non-discretionary bonuses  

Non-discretionary bonuses are based on defined performance criteria. 

• Bonus entitlement might be written into the employment contract 

• Employees know how well they need to perform to receive their bonus 

• You might be legally obliged to pay bonuses when criteria are met, even if other factors cause a strain on finances 

Examples of non-discretionary bonuses: 

• Commissions, given based on sales targets met by employees 

• Referral bonuses awarded to employees who refer successful candidates in their network for open roles 

• Retention bonuses paid to encourage employees to stay with the company until a specified date 

Reward achievement, or influence future behaviour? 

Another key difference is that discretionary bonuses often reward success already achieved, while non-discretionary bonuses are often used to incentivize future performance. 

Discretionary bonuses are typically paid as an annual reward to employees following a successful year. Employees feel rewarded and valued by your organization. 

Non-discretionary bonuses are paid on an agreed schedule, when employees hit a defined target. Employees feel extra motivation to reach the goals you’ve set. 

Both types of bonus payments can help support talent retention and acquisition. 

Individual, team and company-wide bonuses 

Bonuses don’t have to recognize individual performance. 

• Individual bonuses may be best for incentivizing employees to reach individual targets, such as sales targets 

• Team bonuses may be suitable when your workforce is split into teams with defined goals 

• Company-wide bonuses may be most suitable for rewarding strong annual performance. Company-wide bonuses are usually discretionary, since many factors can affect an organization's ability to pay. 

Cash and non-cash bonuses 

While we often think of bonuses as being paid in cash, they don’t have to be. Non-cash options include: 

• Vouchers or pre-paid cards, which can offer good value when purchased in bulk 

• Employee awards that recognize exceptional individual performance and may be accompanied by cash or a voucher 

• Gifts such as electronic devices or luxury items 

• Profit shares, which can include stock options or shares 

Whilst the implementation of bonus schemes is discretionary, it is widely believed to be a beneficial incentive for employees and has proven results among businesses across Canada. For support from HR professionals when deciding to implement a bonus scheme, get in touch with BrightAdvice—BrightHR’s employment relations advice line. Our team can support you in deciding the best type of employee bonus scheme for your business.