Bonus and incentive terms

Compensation system

Meaning: How employees are paid.
Example: Fixed salary + bonus.

Bonus system

Meaning: The rule for earning extra money.
Example: If a salesperson reaches 101–110% of the revenue target, they get 10% of salary as bonus.

Incentive

Meaning: A reason to behave a certain way.
Example: A bonus gives salespeople an incentive to sell more.

Dysfunctional behavior

Meaning: Bad behavior caused by the system.
Example: A salesperson gives too many discounts just to increase revenue and get a bonus, even if profit goes down.

Underforecasting

Meaning: Predicting lower sales than you really expect.
Example: You think you can sell 400,000 units, but you forecast only 300,000.

Sandbagging

Meaning: Underforecasting on purpose to make the target easier to beat.
Example: A salesperson forecasts 300,000 units but expects to sell 400,000, so they can look like they beat the target.

Forecasting error

Meaning: Difference between forecasted sales and actual sales.
Example: Forecast = 300,000. Actual = 400,000.
Forecasting error = 100,000 units.