Compensation glossary

What is a STIP bonus?

STIP appears on payslips, offer letters and HR portals with almost no explanation attached. This page covers what it means, the formula behind the number, and the specific clauses that decide whether you get paid at all.

Short answer

STIP stands for Short-Term Incentive Plan. It is the plan document that governs an annual (or quarterly) cash performance bonus. A "STIP bonus" is the payout from that plan: your base salary multiplied by a target percentage, then adjusted by company, team and individual performance scores, prorated for eligibility, and limited by a cap. STIP and STI mean the same thing in everyday use.

What "STIP" means on a payslip

A line reading STIP, STIP PAYOUT or STI BONUS is the gross short-term incentive for a completed performance period. Three things routinely confuse people about that line:

It is gross, not net Bonuses are withheld as supplemental wages, often at a flat rate. The cash that lands is materially lower than the figure printed on the payslip.

It is for last year, not this one A STIP paid in March almost always relates to the year that ended in December.

It is rarely exactly the target The target percentage in your offer letter is the plan's design point. The payout is that number after multipliers, which are almost never all 100%.

The STIP formula

STIP payout = Salary × Target % × Company × Team × Individual × Eligibility → then cap

Each factor is expressed as a percentage where 100% means "exactly at plan". They multiply, they do not add — which is why two modest misses compound into a large one.

Factor	Typical range	What drives it
Target %	5–50% of salary	Your grade or job level
Company factor	0–200%	Revenue, EBITDA or another corporate metric
Team / business unit	0–150%	Division scorecard
Individual factor	0–150%	Your performance rating or objectives
Eligibility	0–100%	Months employed, leave, part-time hours
Cap	150–200% of target	Plan rules, applied last

Why a STIP payout comes in under target

This is the most searched question about STIP, and there are only five real answers.

The company missed threshold. Most plans pay nothing from the corporate component below roughly 80–90% of plan. Below the line, the factor is zero and it multiplies everything else to zero.

Compounding factors. A 90% company result and a 90% individual result is not 90% — it is 0.9 × 0.9 = 81% of target.

Proration. Starting in April means roughly nine months of eligibility, so about 75% before any performance factor applies.

The cap. A strong year is trimmed back to 150% or 200% of target no matter how far above plan the results landed.

Discretion. Many plans include an explicit clause letting the committee adjust or withhold payouts. It is used more often than people expect.

Worked example: the same person, two different years

Good year

Salary $110,000, target 20% → target payout $22,000. Company 115%, team 105%, individual 110%, full eligibility.

$22,000 × 1.15 × 1.05 × 1.10 = $29,222

Bad year

Same salary, same target, same individual rating of 110%. But the company lands at 88% against a 90% threshold, so the company factor is 0.

$22,000 × 0 × 1.05 × 1.10 = $0

Educational gross estimates. The point of the pair is that individual performance is usually the smallest lever in the formula.

Model your own STIP payout →

STIP vs STI vs AIP vs bonus

STIP vs STI Same thing. STIP is the plan, STI is the incentive it pays. Employers use both words for the same bonus. More on STI →

STIP vs AIP An AIP is an annual incentive plan — a STIP whose performance period is exactly one year. A STIP can also run quarterly.

STIP vs a discretionary bonus A STIP has a written formula and defined metrics. A discretionary bonus has neither — it is decided after the fact with no entitlement. Compare them →

STIP vs LTI STIP is cash for one year or less. LTI is equity or units vesting over three to five years.

Before you accept an offer with a STIP: ask for the threshold, the cap, last three years' actual company payout factor, and the leaver clause. The target percentage on its own tells you very little.

Related tools

STIP calculator

Scorecard payout with multipliers and a cap.

How to calculate a STIP bonus

The formula broken down step by step.

STIP spreadsheet template

Worksheet structure for HR and comp teams.

Frequently asked questions

What does STIP stand for?

STIP stands for Short-Term Incentive Plan — the plan governing a cash performance bonus earned over a year or less.

What does STIP mean in salary?

It is the variable part of your pay package, quoted as a target percentage of base salary. A 20% STIP on a $110,000 salary means a target bonus of $22,000, paid only if performance conditions are met.

What is STIP on a paystub?

A STIP line on a paystub is the gross short-term incentive payout for a completed performance period, usually the previous financial year. It is withheld as supplemental wages.

Is STIP the same as a bonus?

A STIP is a specific kind of bonus — one with a written formula, defined metrics and a payout cap. A discretionary bonus has no formula and no entitlement.

Why was my STIP lower than my target?

Almost always one of five reasons: the company missed its performance threshold, several factors below 100% compounded, your eligibility was prorated, a cap applied, or the plan's discretion clause was used.

Is STIP the same as STI?

Yes, in everyday use. STI is the incentive and STIP is the plan document that defines it, but employers use the terms interchangeably.

Can a STIP payout be zero?

Yes. If the corporate result falls below the plan threshold, the company factor is zero, and because the factors multiply, the whole payout becomes zero regardless of individual performance.