A spot bonus is when an employee is paid a one-time amount at an ad hoc time (i.e., on-the-spot hence the name). This is different than a holiday bonus, which employees might come to expect each year. This is also different than a year-end bonus, which is often built into the compensation structure (e.g., in addition to salary you get a target bonus of 10% on a particular date). A spot bonus might coincidentally be paid around the holidays or the company’s year-end, but it also can happen throughout the year.
For example, I once managed a talented HR associate who went above and beyond what her junior title suggested and oversaw several key recruiting programs. There wasn’t a role where she could be promoted, and she wasn’t eligible for bonus compensation based on her level. Instead, a spot bonus was approved by the head of the group to recognize her outsized performance.
Why companies offer a spot bonus over other forms of payment
The above example of the HR associate shows three reasons why companies offer a spot bonus. First of all, companies want to recognize (and therefore encourage) high performance, and paying someone extra is a visible signal to that employee and others that this is what is valued (so do more of this!). Secondly, the spot bonus is a one-time reward, which doesn’t require the company to change their overall compensation policy. Thirdly, if there isn’t a bigger role an employee can get promoted to, the spot bonus is a retention tool to keep them satisfied absent other growth.
A spot bonus might also be paid out to employees who companies want to retain if there is a budget freeze that prevents raises or shrinks the annual bonus pool. If there is a headcount freeze and existing employees need to take on more to cover for openings that can’t be filled, then these employees might get a spot bonus for the extra work. It’s cheaper than an additional headcount which comes with employment taxes, benefits and other costs. A spot bonus also isn’t part of an employee’s ongoing compensation, so companies don’t have to budget for it year-over-year, and they don’t need to factor the amount of the spot bonus into next year’s raises.
How you can increase your chances of getting a spot bonus
For the employees, a spot bonus represents additional money, so why not position yourself to receive one? Increase your chances of getting a spot bonus by doing more than your day-to-day role. This might be taking on additional responsibilities (saving the company on labor costs), improving on a process to save the company time or pitching and/or implementing an idea that makes the company money.
However, doing good work isn’t enough if your work gets overlooked. In addition to having performance that is bonus-worthy, you need to ensure your manager and other decision-makers know about your accomplishments. Your annual performance review is a good time to review with your manager all the highlights of your recent performance (bring a job portfolio that showcases your work), ideally quantifying your impact. For example, let’s say that you improved the year-end forecasting model so that analyses and reports could be done faster. Calculate the number of people hours saved, and estimate the cost of these hours to come up with your positive impact to the bottom line.
If your performance is good enough to warrant a spot bonus, then it’s good enough to ask for an above-average raise, a promotion or both. A raise or promotion are ongoing rewards so more valuable than a spot bonus. However, if you’re hearing No in your negotiations, then a spot bonus is an alternative solution that your company might agree to.
When a spot bonus might signal bad news
Though a spot bonus has its upsides for both employers and employees, a spot bonus might signal bad news if used as a substitute over other rewards. If your employer is having a difficult time (e.g., they lost a big client) so they give no or low raises and instead give you a spot bonus, that might make you whole for the current year but pay attention that this doesn’t become an ongoing solution. Otherwise, your employer might be heading towards financial insolvency if it can’t grow its client base and start paying real raises again.
Similarly, if you are looking to grow your career but your employer doesn’t have a role into which you can be promoted and instead gives you a spot bonus to appease you, that just gives you a financial incentive for right now. It doesn’t do anything to fix the underlying issue that your career growth is stalled there. Over time, continuing to grow your career with bigger, more challenging roles should pay you more (and potentially be more fulfilling) than a spot bonus scheme.
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What Is A Spot Bonus? Understanding On-The-Spot Incentives - Forbes
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