The terms incentives and bonuses are often used interchangeably. However they are two very different concepts that can be clarified through the metaphors of gifts and investments.
A bonus is a gift the manager gives their employee at the end of the year. It is a way for the manager to say thank you for all your hard work. However bonuses are a guessing game—we don’t get to discuss our gifts beforehand. There is no dialogue during the year and it is unclear what specific actions can be taken to increase your payout. While the unknown may be fun for superfluous presents, it is a different story with the money you need to live. It is easy for expectations to get misaligned. Gifts, especially monetary gifts, imply the power of the giver and subordination of the receiver. The message of what the employee did to deserve the bonus is subordinated to the manager’s willingness to give. The message is this is what I’m willing to give you because I like you and I have decided you deserve it, with the implicit idea that without me you couldn’t get it. The employee is entirely at the hands of the manager’s generosity. There are inescapable parental overtones. In return for their gift, they expect appreciation, loyalty and respect much like a parent would expect from a child.
An incentive is an investment with no risk. The investment in the employee is paid after the employee has helped grow the company. Investments imply a fair return for results. There’s a give and a take and an implicit fairness or equality. There is always a return, since if the employee does not accomplish their goals, no incentive is paid. Managers outline best case scenarios where employees perform outstanding and worse case scenarios where employees perform threshold. Employees know exactly what they need to do in order to get a payout. There is no mystery with investments, it is clearly outlined and everyone is on the same page.