What is an AIP bonus?
AIP shows up constantly in US corporate compensation documents and almost never gets defined in them. It is simpler than it looks.
Short answer
AIP stands for Annual Incentive Plan. It is a cash bonus earned over exactly one performance year, calculated as your base salary times a target percentage, then adjusted by company and individual performance. An AIP is a short-term incentive plan whose period happens to be twelve months — the two terms describe the same kind of bonus.
AIP, STIP and STI — the same bonus, three names
Employers pick one label and stay with it, which is why the terms feel like different things when you move between companies. They are not.
| Term | Full name | Period | What differs |
|---|---|---|---|
| AIP | Annual Incentive Plan | Exactly 1 year | Nothing material — the period is fixed at a year |
| STIP | Short-Term Incentive Plan | ≤ 1 year | Can also run quarterly or half-yearly |
| STI | Short-Term Incentive | ≤ 1 year | The incentive rather than the plan document |
| MIP | Management Incentive Plan | 1 year | An AIP restricted to management grades |
If a document uses two of these terms in the same paragraph, read the definitions section — that employer has given them a local distinction that is not standard.
How an AIP payout is calculated
Most AIP designs weight the components explicitly. A very common structure is 70% corporate performance / 30% individual performance, so the formula becomes:
Base salary $130,000, AIP target 25% → target $32,500. Corporate lands at 92%, your individual result at 120%, weighted 70/30.
Weighted factor = (0.70 × 0.92) + (0.30 × 1.20) = 0.644 + 0.360 = 1.004
Note how a strong personal year barely moved the total — a 30% weighting on a 20% overperformance is worth six percentage points. Educational gross estimate only.
Calculate your own AIP payout →
The clauses that decide what you actually get
When AIP is paid
For a calendar-year plan, results close in December, are audited in January and February, ratings are approved, and payment lands with the February or March payroll. Plans on a fiscal year follow the same lag from their own year end. Because the payout is treated as supplemental wages, the withholding rate applied is often higher than your normal marginal rate.
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Frequently asked questions
What does AIP stand for in compensation?
AIP stands for Annual Incentive Plan — a cash bonus earned across one performance year, based on company and individual results.
Is AIP the same as STIP?
Effectively yes. Both are short-term cash incentive plans. AIP always runs over a one-year period, while a STIP can also run quarterly or half-yearly.
How is an AIP bonus calculated?
Base salary times the AIP target percentage gives the target payout. That is then multiplied by a weighted performance factor — commonly 70% corporate and 30% individual — prorated for eligibility and limited by a cap.
When is an AIP bonus paid?
Usually two to three months after the plan year ends, once results are audited and ratings approved. For a calendar-year plan that means February or March.
Can an AIP bonus be zero?
Yes. If corporate results fall below the plan threshold, the corporate component pays nothing, and on most plans that leaves only the smaller individual portion — or nothing at all if the threshold gates the whole payout.
What is a typical AIP target percentage?
Around 10-20% of base for professional roles, 20-35% for directors and 40%+ for senior executives. It is set by job grade, not by individual negotiation, in most large employers.