Bonus

3 key takeaways

• Employee Bonuses: Additional compensation provided to employees based on individual performance, company profitability, or as a part of a contractual agreement.
• Shareholder Bonuses: Extra dividends or shares given to shareholders as a reward for their investment and loyalty.
• Customer Bonuses: Incentives or rewards given to customers, often in the form of discounts, cashback, or loyalty points, to encourage repeat business and customer loyalty.

What is a bonus?

A bonus is a form of extra compensation or reward that is given on top of what is regularly earned. Bonuses can take various forms, such as cash payments, stock options, extra vacation days, or discounts. They are used in different contexts, including as incentives for employees, rewards for shareholders, and promotional tools for customers.

Types of Bonuses

• Employee Bonuses: These are given to employees as part of their compensation package and can be based on individual performance, team performance, or company profitability. Common types include:
• Performance Bonus: Awarded for achieving specific performance targets or exceptional work.
• Profit-Sharing Bonus: Distributed based on the company’s profitability, often as a percentage of profits.
• Signing Bonus: Offered to new employees as an incentive to join the company.
• Retention Bonus: Given to employees to encourage them to stay with the company during critical periods.
• Shareholder Bonuses: Rewards given to shareholders, often in the form of additional shares or cash dividends. These can include:
• Stock Dividend: Additional shares given to shareholders instead of or in addition to cash dividends.
• Extra Cash Dividend: A special one-time dividend payment to shareholders.
• Customer Bonuses: Incentives provided to customers to encourage repeat business and loyalty. These can include:
• Loyalty Points: Points accumulated through purchases that can be redeemed for rewards or discounts.
• Cashback: A percentage of the purchase amount returned to the customer as cash or credit.
• Promotional Discounts: Special discounts offered for future purchases or as a reward for loyalty.

Real world application

Employee Bonuses

• Motivation and Retention: Companies use performance and retention bonuses to motivate employees and reduce turnover. For example, a company might offer end-of-year bonuses based on individual performance evaluations.
• Attracting Talent: Signing bonuses are used to attract highly skilled employees, especially in competitive industries.

Shareholder Bonuses

• Rewarding Investment: Companies may issue extra dividends or stock dividends during profitable years to reward shareholders. This not only incentivizes continued investment but also helps maintain shareholder satisfaction.
• Increasing Shareholder Value: Stock dividends can increase the total value of a shareholder’s investment by providing additional shares.

Customer Bonuses

• Building Loyalty: Retailers and service providers use loyalty programs to reward repeat customers. For instance, a coffee shop might offer a free drink after a certain number of purchases.
• Encouraging Purchases: Cashback offers and promotional discounts are used to encourage more spending by providing immediate financial benefits to customers.