What are the different types of bonus scheme?

Bonuses can be contractual or discretionary.

Contractual bonuses have clear performance targets, with resulting payment calculations which are easily identifiable if the target has been reached. Discretionary bonuses, on the other hand, allow employers a varying degree of leeway (depending on how the bonuses clauses are drafted), to decide what level of bonus is paid and against what criteria.

There can also be a mix of the two which means you have the contractual right to be considered for a bonus, but your employer can determine whether to award one or not.

The best contractual bonus to have is one that is “guaranteed”.  You would mainly find a guaranteed bonus where you start a new position and it is treated as a “golden handshake” to compensate you for the loss of bonus in your last role (when you moved to your present employer). The guaranteed bonus would usually only be for the first year’s employment.


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