Bonuses: Short-Term Fix or Strategic Lever?

We talk a lot about compensation strategy at CandorIQ—how to make it clearer, fairer, and more impactful. But let’s be honest: when someone hears “bonus,” their ears perk up. And for good reason. Bonuses have the power to motivate, delight, and align teams in a way that few other rewards can.

But here's the thing: they’re not magic. Bonuses can do a lot of good when used intentionally—but they can just as easily backfire if they’re handed out haphazardly, expected like clockwork, or disconnected from performance.

So let’s unpack it: What are bonuses actually good for? What kinds are out there? And how do you build a bonus strategy that works—for your people and your business?

First: Are Bonuses a Short-Term or Long-Term Tool?

The answer is… both. Bonuses can be a tactical short-term lever and a part of a broader long-term strategy. It depends on how you use them.

• Short-term: Spot bonuses and project-based incentives are great for rewarding immediate impact or going above and beyond. They're also helpful when you want to create a burst of energy or celebrate key moments without locking in long-term compensation changes.
  
• Long-term: Annual or structured incentive plans—especially when tied to performance or company milestones—can reinforce sustained behavior and align employees with strategic goals.

The key is to be clear about what you’re trying to drive and why a bonus is the right tool for the job.

A Quick Bonus Breakdown

There are more flavors of bonuses than most people realize. Here are a few common ones and how they’re often used:

• Annual performance bonuses Tied to individual, team, or company results over the course of the year.
  
• Spot bonuses Given in the moment to recognize specific behavior or achievements.
  
• Project-based bonuses Rewarding the completion of a major initiative or stretch project.
  
• Signing bonuses A one-time incentive to close a candidate offer.
  
• Retention bonuses Designed to keep high-value employees through a key phase or event (e.g., pre-IPO, M&A).
  
• Non-cash bonuses Think travel, gift cards, or extra time off—especially useful for “surprise and delight” moments or smaller budgets.

Each one serves a purpose. Used well, they can reinforce the kind of culture and performance you want to build.

Whose Performance Are You Rewarding?

Another big question to answer is who bonuses are tied to:

• Individual performance: Great for recognizing personal contributions—but be careful about undermining team cohesion.
  
• Team performance: Encourages collaboration, but it’s important to make sure expectations are crystal clear.
  
• Company-wide bonuses: Everyone wins when the company wins. These can be powerful for alignment, especially in high-growth startups or smaller orgs.

Personally, I like a mix. Stacking bonuses—where you recognize both individual and team/company-level achievements—can create a balanced system where people feel seen and also invested in broader success.

Hiring Strategy: The Signing Bonus Dilemma

Let’s talk about signing bonuses. They get a bad rap sometimes—but used thoughtfully, they’re a smart move. Especially when you’re hiring into a team and don’t want to blow up your internal equity.

Imagine this: You’re hiring a great candidate, but they’re asking for more than you’re paying their peers. Instead of permanently raising their base and creating a pay gap, you can offer a signing bonus to bridge the gap in year one—without locking in long-term disparity.

Glassdoor reports that over 70% of workers say they’ve negotiated for a higher salary or signing bonus, and companies are increasingly using bonuses as part of a total offer package, not just a perk.

What I Like (and Don’t Like) About Bonuses

Here’s my take, plain and simple:

✅ I like that bonuses:

• Drive alignment between company goals and individual action
  
• Reinforce and incentivize positive behavior
  
• Add an element of joy to the workplace

⚠️ But on the flip side:

• You can’t give them to everyone, all the time
  
• People start expecting them, and that expectation can lead to disappointment
  
• They can create inequity if not well managed

The important part: Bonuses aren’t just for big orgs with big budgets. SMBs can—and should—use bonuses as part of their compensation mix. You don’t need to over-engineer it. Start simple. Tie it to clear outcomes. And communicate the “why” behind it.

Make Bonuses Part of a Thoughtful Total Rewards Strategy

Bonuses aren’t a bandaid. They’re not just a feel-good extra. When done well, they’re a high-impact component of your compensation and rewards philosophy.

My advice? Build a system where bonuses are intentional, measurable, and tied to the culture you’re creating. That’s where the magic happens.

And if you're not sure how to do that—or your current tools don’t make it easy—it’s probably time to rethink the way you're managing compensation in the first place.