A Bonus Makes Sense if it’s Like Sales Commission
As covered in Sales Commission 101
, performance-based compensation is almost always important for sales. But can a bonus program work elsewhere? Sometimes yes, if two things are true:
- The bonus calculation comes from quantifiable output that’s not open to interpretation (e.g., business unit revenue)
- The bonus is a significant part of that person’s compensation (e.g., >25% of total comp including equity) in order to move the needle and thus make its administration worthwhile
Such programs are most commonly found in sales-related roles like business development or general management… and usually only worth managing when the company has hundreds of people.