Discretionary Bonus vs Non-discretionary Bonus

Aside from salaries, workers do receive some compensation. Some of these are accorded by law, such as medical assistance, paid leaves, housing assistance, and retirement benefits, among others. In other countries, workers do receive a 13th-month pay, Christmas bonus, and other kinds of fringe benefits and compensation.

Non-discretionary bonuses are types of monetary compensation given to workers other than their salaries. These types of bonuses vary according to employment and industry. Some give performance bonuses, while others are given bonuses based on the overall performance or income of a company. These types of benefits may be accorded by law or may be agreed upon

There are compensations, however, given by companies or employers, that are not covered by laws or even by agreements between employers and employees. These are special types of bonuses and are known collectively as the discretionary bonus.

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What is a discretionary bonus?

Discretionary bonuses are benefits or compensations given by employers to workers independent of what is prescribed by law or agreed upon in collective bargaining agreements. It is given on top of other bonuses, compensations, or benefits.

The decision to give is based solely on the discretion of the employer. An employer may have specific or various reasons to give, like good behavior and performance of employees, increase in sales, productivity, among others. It is not covered by any law or agreement and could be given anytime and under any circumstances.

The nature of benefits, the amount, as well as the timing, is always subject to the discretion of the employer, and always not defined or definite. The employer can choose whom to give it to, when, and how much. The employer is not prohibited or bounded by regulations in giving incentives to the person who he thinks deserves such a bonus.

Discretionary bonus, then, ultimately depends on the good graces of the employer. It is a benefit that an employee unexpectedly receives. In fact, by its very nature, a discretionary bonus should not be expected at all. Since salaries, benefits, and other compensation are already guaranteed by law or agreed upon, to be given a discretionary bonus, is indeed a bonus.

What is a non-discretionary bonus?

Non-discretionary bonuses are all types of monetary benefits, aside from the usual salaries, that are accorded by law, or agreed upon by both parties through a collective bargaining agreement. Sometimes it depends on the organization’s culture. These are compensation that must be given by employers to their workers, and cannot be subjected to the discretion of the employer.

These types of bonuses usually have accompanying criteria, and may not be the same with regards to everyone or every employee. For instance, one who has worked for more than ten years will receive a bonus commensurate to his years of service. Someone who works for five years may expect something less.

It is a bonus that is announced, usually even before a worker is hired or employed. It is something which employees expect. The nature, time, and amount of compensation is already known, computed way before, and sometimes, adjusted or pro-rated according to the performance of an employee, or company as a whole.

Discretionary bonus vs non-discretionary bonus

Discretion, as we see, is the vital difference between the two. The first is subject to the dictates of the employer and almost whimsical. The second one is either based on law or agreed upon, and rules and regulations regarding this can never be subjected to discretion, much less the bonus itself.

There are also differences with regards to the nature of the benefits being handed to the employees. Among these are the following.

Ill-defined vs Well defined

In a discretionary bonus, the employer has the say as to what he/she is going to give, how much, and when. As such, the exact benefits that could be given can never be ascertained until it is given. It may vary, and the benefits themselves may be not subjected to rules and regulations covering benefits.

In a non-discretionary bonus, everything is defined, sometimes to the letter. The criteria covering it, the amount, as well as the rules and regulations regarding the benefits and coverages, are defined properly and explicitly. Everybody knows what must be given, and whether how many, or how much.

Unexpected vs expected

A discretionary bonus could be given anytime, as its nature is always unexpected and surprising. You do not know when you will receive one, or whether you will receive it at all. Success and performance, though great and well appreciated, do not necessarily lead to a discretionary bonus, especially so if the company already has a system or agreement in place.

Non-discretionary bonus, however, is expected. Whether we are talking about performance bonuses, yearly bonuses, or bonuses that are given commensurate to the time of service, one always has an idea as to when to receive it. There is no surprise involving this type of bonus, for there is an agreement, if not a law, about it.

Entitlement

So who is entitled to a discretionary bonus? Everyone could be given a discretionary bonus, but not everyone could receive it. Since it is subject to the employer’s discretion, the decision as to who will receive one depends on him, and technically, it could be anyone. This is far, however, from saying that everyone will receive one, assuming that it is given.

In a non-discretionary bonus, however, everyone is entitled as prescribed or agreed upon. In short, a non-discretionary bonus is something that every worker or employee should receive. The nature and/or amount of the bonus may differ, depending on certain criteria. It is, however, expected that an employee will receive some kind of bonus that is commensurate to work and years of service.

How to ensure compliance with a non-discretionary bonus?

A non-discretionary bonus is something that is required to be given to the employees. As such, all employers must comply with the rules and regulations regarding it. As an employee, you must ensure that your employers follow the rules regarding bonuses and benefits. You deserve to receive all the benefits and bonuses as prescribed, either by law or agreement.

You must know all the rules of the company regarding bonuses, who is entitled and who are not. Since a non-discretionary bonus is something subject to rules and policies, you must know the policies regarding the benefits, who are entitled, when, and how much

You must also know the computation regarding the benefits and bonuses. Computation could range from an hourly basis, to daily, to years of service. Knowing the computation will give you an idea as to how much you must receive given a particular task you perform, or hours, days, months, or years of service you rendered for the company.

Mistakes do happen, whether in small companies or large ones. Make sure that you are always on top of the situation with regards to things that you are entitled. You must keep track of your performance, of your track record, and all the services you give to the company. In case of mistakes, you can assert your right, and ensure that errors regarding computation be rectified.

Finally, in case your company does not want to comply in giving all the bonuses you deserve, you must know whom to turn to. You can look for authorities and experts in the field, and ask for their assistance and help. Disputes may arise now and then, so be sure that you are given proper guidance and advice by those who really know.

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About the author

Susanne Ricee

Susanne Ricee is the Diversity and Inclusion Specialist and Researcher at Diversity for Social Impact. Sue brings over 15 years of HR and Diversity, Equity, Inclusion consultation experience.
Sue's previous experience includes Microsoft, Target, and Kraft. Sue is also the manager of Diversity Leadership Directory