Compensation glossary
Bonus and incentive pay: what every term actually means
Compensation documents are written in abbreviations. This glossary translates the ones that change how much money you receive — not the ones that just sound important.
Start with the four that cause the most confusion
The short version
STI, STIP, AIP and MIP all describe the same thing: an annual cash bonus driven by company and individual performance. LTI and LTIP are the multi-year equity equivalent. Everything else in this glossary is a rule that modifies how much of that bonus you actually receive.
A to Z
AcceleratorA higher payout rate applied above a threshold, usually 100% of quota. Turns overachievement into disproportionately higher earnings. Read more →
Annual Incentive Plan AIPA cash bonus plan measured over exactly one performance year. Functionally the same as a STIP with an annual period. Read more →
Base salaryThe fixed, guaranteed part of pay. Every percentage-based bonus target is calculated from this number, so it compounds into everything else.
CapThe maximum payout a plan will pay, usually expressed as a percentage of target (150% or 200% are typical). Applied last, after every other factor.
ClawbackA clause letting the employer reclaim a bonus already paid — commonly after a cancelled deal, a restatement of results, or an early resignation. Read more →
CommissionVariable pay calculated directly from sales value or margin, normally paid monthly or quarterly rather than annually. Read more →
DeceleratorThe mirror of an accelerator: a reduced payout rate below a performance level, used to make underachievement cost more.
Discretionary bonusA bonus with no formula and no entitlement, decided after the period ends. Legally and practically very different from a plan-based bonus. Read more →
DrawAn advance against future commission. A recoverable draw is deducted from later earnings; a non-recoverable draw is effectively a guaranteed minimum. Read more →
EligibilityThe rules deciding who qualifies for a payout, including hire date cut-offs, notice periods and the requirement to be employed on the payment date.
KPI weightingHow much each measure contributes to a scorecard result. Weights should total 100%; a small weight on a metric means strong performance there barely moves the payout. Read more →
Long-Term Incentive LTI / LTIPCompensation vesting over three to five years, usually in equity. Forfeited if you leave before it vests. Read more →
Management Incentive Plan MIPAn annual incentive plan restricted to management grades. Same mechanics as an AIP. Read more →
MultiplierAny factor applied to a target payout — company, team, individual or modifier. Multipliers compound, so two results of 90% produce 81%, not 90%. Read more →
On-Target Earnings OTEBase salary plus variable pay assuming target is hit exactly. A projection, never a guarantee, and routinely overstated in job adverts. Read more →
Payout curveThe mapping from performance to payout across threshold, target and maximum. Often stepped rather than linear, which is why 99% attainment can pay far less than 100%. Read more →
ProrationReducing a payout for partial eligibility — mid-year joiners and leavers, unpaid leave, or part-time hours. Usually calculated by days or full months. Read more →
QuotaThe sales target a commission or bonus plan measures against. Attainment is actual results divided by quota. Read more →
Quota attainmentActual results as a percentage of quota. In most sales plans this single number controls the entire payout. Read more →
Retention bonusA payment for staying through a defined date, usually with a clawback if you leave before it. Read more →
Short-Term Incentive STIA performance bonus earned over one year or less, paid in cash. Read more →
Short-Term Incentive Plan STIPThe plan document governing an STI. Used interchangeably with STI by most employers. Read more →
Target bonusThe payout the plan is designed to produce at exactly 100% performance, expressed as a percentage of base salary. Read more →
ThresholdThe minimum performance level before any payout is earned. Below it the factor is zero — and because factors multiply, that can zero out the entire bonus.
Total target compensation TTCBase salary plus target STI plus annualised LTI. The number to compare between two job offers, not base alone.
VestingThe schedule on which long-term awards become genuinely yours. Cliff vesting pays all at once; graded vesting pays in instalments. Read more →
The four numbers that matter most in any plan: your target
percentage, the threshold, the cap, and the leaver clause. Everything else is detail.