A guaranteed bonus is contractual and can be counted at face value. A formula bonus is tied to measurable targets and can reasonably be counted at target. A discretionary bonus is a statement of intent and should be counted at zero, however consistently it has been paid. The distinction is in the offer letter, and asking which one it is takes a sentence.
Three kinds, and only one you can count on
Guaranteed. Contractually owed for a defined period, usually a sign-on or a first-year guarantee. Value it at face value, and check what happens if you leave — many are repayable on early departure.
Formula-driven. Tied to measurable outcomes with a stated calculation. Value it at what the median person actually achieved, which is a question with an answer.
Discretionary. Paid at the employer’s judgment. Value it at zero, not because it will not arrive but because you cannot rely on it and planning around it is how people end up disappointed by a package that technically delivered.
The question that reveals which one you have
Ask what the bonus paid out at for people in this role last year, and the year before. A formula plan has an answer; a discretionary one produces a range and some hedging.
Reluctance to answer is itself the answer. Well-run plans with good histories get described readily, because the history is a recruiting asset.
What target actually means
A 15 per cent target is what you receive when everything performs as planned. In many organizations most people land below target most years, because the plan is designed with that distribution in mind.
So building a budget on target is building on the optimistic end of a distribution. The median achieved figure is the honest planning number and it is frequently well below.
The conditions that quietly remove it
Being employed on the payment date is the most common. Leave in February and a bonus earned across the previous year may be forfeited entirely, which changes the arithmetic of when to move.
Company performance gates are the other. An individual plan that pays only if the organization hits its own target is really a company bonus wearing individual clothing, and your performance cannot rescue it.
Where the money actually is
Base, almost always. Everything else is calculated from it — bonus percentages, retirement contributions, next year’s increase — and it is the only element that survives a bad year for the business.
Which is why trading base for a larger bonus percentage is usually a poor deal. You are exchanging a certainty for a probability and reducing the multiplier on everything else at the same time.
The sign-on that is not a gift
A sign-on bonus frequently exists to bridge equity you are forfeiting by leaving, or to close an offer without raising the base above a band. It is one-off, it does not compound, and it usually carries a repayment clause.
Accepting a lower base in exchange for a large sign-on costs you every subsequent year, because every future increase is a percentage of the base you agreed.
What to get in writing
The calculation, the payment date, what happens if you leave before it, and whether there is a company performance gate. Four items, all reasonable to ask for, and all of which change the value materially.
A plan document usually exists. Asking to see it is normal and the response tells you something either way.
The realistic way to hold it
Treat variable pay as a good year’s upside rather than as income. Run your household on base plus anything guaranteed, and let the rest be what it is.
People who do the opposite end up structurally dependent on a payment somebody else decides, which is a weak position in exactly the conversations where you want a strong one.
The commission version of the same problem
In commission roles the equivalent question is the draw. A recoverable draw is an advance clawed back from future commission, so a slow start creates a debt. A non-recoverable draw is a genuine floor.
Those are completely different jobs described with the same word, and the answer determines what happens to you in a bad quarter. Ask which one it is before accepting, and get the answer in the offer letter rather than in conversation.
Common questions
How should I value a discretionary bonus?
At zero. It is written to avoid commitment, and a history of payment is evidence of intent rather than an entitlement.
What about a formula bonus?
Count it at target, and ask what it has actually paid as a percentage of target for the last three years.
Is a guaranteed bonus really guaranteed?
If it is written into the offer, largely yes — but read whether you must still be employed on the payment date.
Will I get the full bonus in year one?
Often not. Bonuses are frequently prorated from your start date, so a late-year start can mean a fraction of the quoted figure.
Should base or bonus matter more?
Base, because every future increase is calculated from it and it does not depend on anyone's discretion.
How should I value a bonus?
Guaranteed at face value, formula-driven at what the median person actually achieved, and anything discretionary at zero.
What does a target bonus mean?
What you receive when everything performs as planned. In many organizations most people land below target most years, so it is the optimistic end of a distribution.
What quietly removes a bonus?
Being employed on the payment date — leaving in February can forfeit a bonus earned across the previous year — and company performance gates on individual plans.