Salary vs. Bonus-Based Pay: Which is Better For Your Earning Potential?
Written by
Catherine Collins
Edited by
Angela Corry
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Currently, most American workers earn a salary. However, more jobs in the future could have a bonus-pay structure instead. A recent Wall Street Journal article reported on this shift, explaining that bonus-based pay is a way for companies to combat rising management costs.
With bonus-based pay, companies can reward high-performers and reduce payroll costs for employees who don’t reach their targets. While some industries, like real estate and sales, have offered bonus-based pay for quite some time, the Wall Street Journal reported that it could become more common in other industries, too, like accounting.
In fact, The Alexander Group, a consulting firm, recently shared its 2024 Sales Compensation Trends Survey. The results showed that 28% of the 300+ companies surveyed planned to offer jobs with some type of bonus structure in the future.
How Companies Choose Pay Structure
Each company chooses a pay structure based on factors like revenue goals, industry, and economic stability.
Some industries, such as sales, tech, real estate, and finance, tend to offer more bonus-based pay opportunities. Industries with salary-based pay typically include healthcare, government jobs, education, and manufacturing.
Many companies that want to encourage high-performance employees choose bonus-based pay structures. Some companies offer a combination of both, where a certain percentage of an employee’s salary is set while the remaining percentage is based on performance.
Salary Pay
Benefits
The most significant benefit of having a fixed salary is that people can predict their paychecks each pay period, regardless of their performance or outcomes. This enables employees to budget their money effectively and plan for long-term expenses and savings goals.
Drawbacks
The drawback to salary pay is that employees are limited in how much they can earn. Although salaried employees can earn raises, there’s no guarantee they will secure one. Additionally, raises may be limited depending on company performance or broader environmental factors.
Bonus-Based Pay
Benefits
Bonus-based pay enables high performers to earn more. Rather than be limited by a set salary, employees with bonus-based pay structures can get rewarded for their hard work. Some companies base bonus pay on team performance, too, which can encourage people to work together towards a common goal.
Drawbacks
According to an article in the Harvard Business Review, sometimes offering pay incentives has downsides. One study showed that bonus structures increased employee absences. Another showed that regular performance meetings had more of an impact on revenue than bonuses.
Can You Earn More With Bonus-Based Pay?
Whether or not you can earn more with bonus-based pay depends on your pay structure, your industry, and what motivates you as an employee. For some, shifting to bonus-based pay can mean a much higher income. For others, it could increase stress levels at work.Â
For people considering transitioning into a job with bonus-based pay, it’s imperative to understand what goals you need to meet and how the company grades performance. That way, people can determine whether a new bonus-based job is an opportunity for growth and more income.
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