Bonus vs Commission vs Incentive: What's The Difference?

Employers use different types of payments to reward employees, improve performance and support business goals.

Three common terms are bonus, commission and incentive.

They may sound similar, but they are usually designed for different purposes.

For HR and employers, understanding the difference can help when creating a compensation package, setting targets and deciding how employees should be rewarded.

For employees, knowing the difference can also make it easier to understand a job offer or payslip.

Bonus vs Commission vs Incentive At A Glance

Payment Type	Usually Linked To	Common Payment Timing	Example
Bonus	Overall performance or company results	Monthly, quarterly or annually	Annual performance bonus
Commission	Sales or revenue generated	Monthly or based on eligible sales	Sales commission
Incentive	A specific target or result	Depends on the scheme	Monthly target incentive

The exact structure can vary between employers, industries and job roles.

What Is A Bonus?

A bonus is an additional payment given on top of regular salary.

Employers may use bonuses to reward:

Individual performance
Team performance
Company performance
Annual results
Special achievements
Employee retention

A bonus is often based on performance over a period of time rather than one individual sale or transaction.

Example of A Bonus

An employee earns RM4,500 per month.

The company provides a one-month annual bonus.

RM4,500 × 1 = RM4,500 bonus

The employer could also use a performance-based formula instead of a fixed one-month bonus.

What Is A Commission?

A commission is usually linked directly to sales, revenue or another measurable transaction.

It is common in roles such as:

Sales
Business development
Real estate
Recruitment
Insurance
Account management

The more eligible sales or revenue an employee generates, the more commission they may earn, based on the company's commission scheme.

Example of A Commission

A salesperson generates RM100,000 in eligible sales.

The company offers a 5% commission.

RM100,000 × 5% = RM5,000 commission

The company may also set additional rules, such as minimum targets, commission tiers, payment dates or treatment of cancelled sales.

What Is An Incentive?

An incentive is an additional reward designed to encourage a specific target, behaviour or result.

Unlike commission, an incentive does not have to be based on sales.

For example, an employer could offer an incentive for:

Reaching a monthly target
Completing a project
Improving productivity
Achieving a customer satisfaction target
Reducing errors
Meeting a team goal
Completing a hiring target

Example of An Incentive

A recruitment team has a monthly target of 20 successful hires.

Employees who meet the target receive a RM500 incentive.

The payment is linked to the specific target rather than a percentage of revenue.

What Is The Main Difference?

The easiest way to understand the three is to look at what triggers the payment.

Bonus

Usually rewards overall performance or results.

You performed well during the year, so you receive a bonus.

Commission

Usually rewards sales or revenue generated.

You generated RM100,000 in sales, so you receive commission.

Incentive

Usually rewards a specific target or result.

You achieved this month's target, so you receive an incentive.

The employer can decide how each scheme works based on the role and business objective.

How Should Employers Choose Between Bonus, Commission and Incentive?

The right option depends on what you want employees to achieve.

Business Goal	Possible Structure	Why
Reward yearly performance	Bonus	Looks at broader results over a longer period
Increase sales	Commission	Directly links additional pay to sales
Push a specific monthly target	Incentive	Focuses employees on one measurable goal
Reward project completion	Bonus or incentive	Can be linked to project results
Reward company-wide performance	Bonus	Can reflect overall business results
Encourage sales and retention	Commission + bonus	Rewards short-term results and broader performance

Some companies may use more than one structure for the same role.

When Should Employers Use A Bonus?

A bonus can work well when you want to reward broader performance over time.

Employers may use different types of bonuses depending on their goals.

Annual Bonus

To recognise overall performance during the year.

Performance Bonus

To reward individual or team performance.

Project Bonus

To recognise successful completion of an important project.

Retention Bonus

To encourage an employee to stay for a specific period, subject to the applicable terms.

A bonus is useful when performance is not tied to one individual sale or transaction.

When Should Employers Use Commission?

Commission can be useful when an employee's role is directly connected to sales or revenue.

For example:

Basic salary + sales commission

This gives employees a clear connection between their sales results and additional earnings.

Before introducing a commission scheme, HR should clearly define:

What counts as an eligible sale
Commission rate
Sales target
Payment period
Payment date
Treatment of cancelled or refunded sales
Commission tiers
Eligibility rules

Example Commission Structure

Monthly Eligible Sales	Commission Rate
RM0 - RM49,999	0%
RM50,000 - RM99,999	3%
RM100,000 and above	5%

The actual structure should match the company's business model.

When Should Employers Use Incentives?

An incentive can work well when the company wants employees to focus on a specific, measurable goal.

For example:

Complete 20 successful hires in one month → RM1,000 incentive

Or:

Achieve 95% customer satisfaction → RM500 incentive

Incentives can be useful for short-term campaigns, specific projects or measurable team targets.

Can An Employee Receive All Three?

Yes.

Depending on the role and company policy, an employer can offer:

Basic salary + commission + incentive + bonus

For example:

Pay Component	Example
Basic salary	RM4,000/month
Monthly commission	RM2,500
Quarterly incentive	RM1,000
Annual bonus	RM5,000

Each payment can have a different purpose.

Commission rewards sales performance.

Incentive rewards a specific target.

Annual bonus rewards broader performance or company results.

How Should HR Design A Bonus, Commission or Incentive Scheme?

Before introducing a scheme, HR should answer a few basic questions.

What Result Do We Want To Encourage?

Be clear about the business goal.

For example:

More sales
Higher productivity
Better customer satisfaction
Stronger annual performance

Can The Result Be Measured?

The target should be clear enough for both HR and employees to measure.

Instead of:

Improve your sales.

Use:

Achieve RM100,000 in eligible monthly sales.

Who Is Eligible?

Define which employees qualify.

Consider:

Job role
Employment status
Length of service
Confirmation status
Performance requirements

How Is The Payment Calculated?

Explain the formula before employees start working towards the target.

When Is The Payment Made?

State whether the payment is:

Monthly
Quarterly
Annually
After a project
After the target period ends

What Happens When Results Change?

HR should consider situations such as:

Cancelled sales
Customer refunds
Target changes
Employee transfer
Employee resignation
Employees joining during the target period

Having these rules in advance can prevent disagreements later.

What Should HR Include In The Policy?

A clear policy should explain the important details of the payment.

For Bonuses

HR should state:

Eligibility
Performance criteria
Calculation method
Payment timing
New-joiner rules
Resignation rules
Approval process

For Commissions

HR should state:

Commission rate
Eligible sales
Target requirements
Calculation period
Payment date
Cancellation or refund rules
Commission tiers
Adjustment rules

For Incentives

HR should state:

Target
Measurement period
Eligibility
Reward amount
Payment date
Conditions

The more clearly the rules are explained, the easier it is for HR and employees to understand the scheme.

What About New Employees and Employees Who Resign?

This is something HR should decide before launching the scheme.

New Employees

The policy may state that new employees receive:

Full eligibility
Pro-rated eligibility
Eligibility only after confirmation
No eligibility during the first year

Employees Who Resign

The policy may state that employees must:

Still be employed on the payment date
Complete the target period
Meet a minimum service requirement
Follow the specific terms of the scheme

There is no single approach that applies to every employer. The important thing is to clearly state the rules.

How Should HR Explain The Scheme To Employees?

A complicated reward scheme can cause confusion even when the payment itself is attractive.

HR should explain:

What is the target?
How is it calculated?
Who qualifies?
When is it paid?
What happens if a sale is cancelled?
What happens if the employee joins or leaves during the period?

Example Employee Communication

Sales commission update

Employees will receive a 3% commission on eligible sales between RM50,000 and RM99,999 during each calendar month.

Sales must meet the company's eligibility requirements to qualify.

Commission will be processed with the following month's payroll.

Please contact HR if you have questions about the calculation.

Keep the wording simple and consistent.

Do Bonus, Commission and Incentive Affect Payroll?

Yes. HR and payroll should make sure these payments are processed correctly under the applicable payroll rules.

For PCB purposes, HASiL's current guidance treats bonus and incentive as additional remuneration. It also treats commission that is not paid monthly as additional remuneration for PCB calculations.

For EPF, employers should check the current KWSP contribution rules when processing these payments.

This is why HR and payroll teams should review the payment type and current statutory treatment before finalising payroll.

Simple Example: How The Three Can Work Together

Imagine a business development executive has:

Basic salary: RM4,500/month

Commission: 3% of eligible sales

Monthly incentive: RM500 when the monthly target is achieved

Annual bonus: Up to one month of basic salary based on performance

The employee generates RM80,000 in eligible sales and reaches the monthly target.

Commission

RM80,000 × 3% = RM2,400

Monthly Incentive

= RM500

The employee may also receive an annual bonus later, depending on the company's bonus policy and performance assessment.

This shows how the three payment types can work together without serving the same purpose.

How To Review Your Reward Structure

HR should review the scheme regularly to make sure it is still working.

Ask:

Are employees achieving the target?
Is the target still realistic?
Are employees clear about how the payment is calculated?
Is the scheme encouraging the behaviour we want?
Is payroll able to process it accurately?
Is the cost of the scheme sustainable for the company?
Are similar employees being treated consistently?

A reward scheme should support business goals without creating unnecessary confusion for employees or HR.

FAQs

What is the difference between Bonus and Commission?

A bonus usually rewards broader performance or results, while commission is normally linked directly to sales or revenue generated.

What is the difference between Bonus and Incentive?

A bonus often rewards overall or longer-term performance, while an incentive is usually linked to a specific target, behaviour or result.

What is the difference between Commission and Incentive?

Commission is commonly based on sales or revenue, while an incentive can be linked to different targets such as productivity, customer satisfaction or project results.

Are Bonus, Commission and Incentive included in payroll calculations?

They may affect payroll calculations, including EPF and PCB, depending on the payment and applicable rules. Employers should check the current KWSP and HASiL requirements.

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