DEFINITION of 'Performance Bonus'

A form of additional compensation paid to an employee or department as a reward for achieving specific goals or hitting predetermined targets. A performance bonus is compensation beyond normal wages and is typically awarded after a performance appraisal and analysis of projects completed by the employee over a specific period of time.

BREAKING DOWN 'Performance Bonus'

Not all companies offer bonus plans, and those that do often define the maximum amount that an employee can receive for exemplary performance. Companies that use an appraisal or employee review process may set a score threshold that an employee will have to meet or exceed in order to be considered. Because this bonus is given for performance above expectations, employees are not automatically entitled to it.

Performance bonuses may be given to an entire team or department if, for example, specific sales figures were met, or if the actions of that group were deemed to have been exceptional.

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