Guide
Common bonus plan terms
A lot of compensation confusion is not really about arithmetic. It is about language. This glossary explains the terms that most often change the size, timing, and reliability of a payout.
| Term | Plain-English meaning | Why it matters |
|---|---|---|
| Threshold | Minimum performance level before payout begins. | No threshold reached, little or no payout. |
| Accelerator | Higher payout rate after a milestone. | Creates more upside above plan. |
| Cap | Maximum payout amount. | Limits upside even if performance improves. |
| Clawback | Rule that reverses previously paid compensation. | Common with cancellations or bad debt. |
| Draw | Advance paid against future commission. | May need to be repaid from future earnings. |
| OTE | On-target earnings at expected performance. | Useful for comparison, but not guaranteed pay. |
| Quota attainment | Performance as a percentage of quota. | Often the main driver of sales-bonus payout curves. |
Commission vs bonus
Commission is often rate-based on sales or production. Bonus is often milestone- or scorecard-based.
Draw vs salary
Salary is fixed guaranteed pay. Draw may be an advance tied to future variable compensation.
FAQ
Why not just read the payout number?
Because the number is the result of the rules. If you do not understand the rules, you do not understand the payout.
Which terms create the biggest misunderstandings?
Draw, OTE, threshold, clawback, and accelerators are among the most misunderstood.
Terms that deserve extra caution
| Term | Why it matters | What to ask |
|---|---|---|
| Modifier | Can change payout after the main math is done | Who controls it, and is it discretionary? |
| Funding | Can reduce everyone’s payout even with solid individual performance | What company result determines funding? |
| Holdback | Delays part of the payout | When is the held amount released? |
| Clawback | Can reverse prior earnings | Under what events does it apply? |