Bonus vs. Commission: What are the Major Pros and Cons of Each?

Introduction: What is a Bonus? What is a Commission?

Some people often mistake a bonus for a commission and vice versa, but they are actually different from each other.

A bonus is a reward that is given to an employee for their work. The reward may be given in addition to the salary or it may replace the salary. Bonuses are often given as a way of rewarding performance and incentivizing employees to work harder.

A commission, on the other hand, is a sum of money paid by the seller of goods or services to a person who acts as an agent for them, such as a salesperson, broker, or agent.

The difference between commission and bonus is that commission can be paid based on sales volume while bonus can be paid based on performance.

Benefits of Commission Structure Over a Bonus Structure

In general, commission structure provides a higher incentive for employees and motivates them to perform better. They are also more likely to be satisfied with their job because they know that if they do well, they will get a higher commission and this would result in an increase in their income.

Bonus structures are not as beneficial because it does not motivate people to work hard for the company. They might just be focused on getting their bonus at the end of the year instead of focusing on achieving goals set by the company.

Conclusion: When Should You Use Commission or Bonuses as an Incentive for Employees?

Just like all things performance related, it is best to track past performance and responses to different sales performance management styles. Referring to this data can help you choose between commission and bonus, or if a mix of both would be more beneficial to your sales team.