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Definition of Bonus:

Bonus is a financial incentive given to current and prospective employees to reward their performance at work, for helping the organization, and for ensuring employee retention. This is in addition to the normal compensation given to the employees. For shareholders, it can be in the form of bonus issue, wherein they are offered free additional shares of the company’s stock. It is a way by which employers show their gratitude to the team or the employees for helping achieve the company goals. Consequently, it boosts morale and productivity, motivating employees to achieve their best. 

Designing a Bonus and Rewards Scheme:

Bonuses can be paid based on the company’s discretion, or it can be contractual. 

What is a discretionary bonus?

Often given as a gratitude to their good performance, employers may reward a bonus amount they see fit. In such cases, it is not necessary to pay a bonus to employees. It is only given when the employer deems it necessary. A common example would be festive bonus. This can also be in the form of non cash vouchers, luxury items, or prepaid cards as well.

What is a non discretionary bonus?

Non discretionary bonuses are expected by the employees as it is mentioned in the employment contract or documents. They can be dependent on certain factors, like performance benchmarks, attendance and so on. As a result, employees know what they have to do get the bonus.

Types of Bonus: