What is Discretionary Bonus ?
A discretionary bonus is a bonus that an employer can choose to give at their own discretion. This means it is not required and does not rely on any contractual agreements or specific criteria. Employers often award these bonuses to employees as a recognition of outstanding performance, loyalty, or to encourage motivation. Typically, these bonuses are tied to performance and are given as a pleasant surprise or an extra incentive, rather than being something that is guaranteed.
Types of discretionary bonuses
- Performance-Based Bonus: Given for exceptional individual or team performance.
- Holiday Bonus: Often given during festive seasons as a token of appreciation.
- Sign-On Bonus: Offered to new hires as an incentive for joining the company.
- Referral Bonus: Given to employees who refer successful candidates for open positions.
- Profit Sharing: A bonus given based on company profits, though not guaranteed.
- Project Completion Bonus: Given upon successful completion of a significant project.
To calculate discretionary bonuses, you can use the following approaches:
- Percentage of Salary: Multiply the employee’s base salary by a predetermined percentage.
- Performance-Based: Assess the employee’s performance using metrics, then allocate a set bonus amount based on their performance level.
- Flat Amount: Set a fixed bonus amount for all eligible employees or specific groups.
- Profit Sharing: Calculate based on company profits and distribute a portion among employees.
The calculation method depends on company policy and the specific bonus type.
How HR teams use this term
HR teams usually use Discretionary Bonus when they write policies, explain employee communication, review payroll or leave records, or keep employee data clean in an HRMS.
Related EasyHR product
Automate payroll with EasyHR
Process payroll with automated PF, ESI and tax calculations — payslips out in one click.