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‹ HR Glossary

Short-term incentive (STI)

Pay and remuneration
What is a short-term incentive (STI)?

A short-term incentive is variable pay earned over a year or less, usually an annual bonus against a scorecard of individual, team and company measures, expressed as a target percentage of salary. It is the standard vehicle for rewarding this year's performance.

The standard architecture

An STI plan sets a target (say 10-20% of salary, rising with seniority), a scorecard (typically blending company results, team outcomes and individual goals), gateways (thresholds below which nothing pays, often a company profit floor) and a payout curve (how outcomes map to percentages of target, with caps). The design questions hide in the weights: a plan 80% weighted to company results is profit-sharing wearing a bonus costume; one 80% individual can pay stars in a failing business.

What makes STIs work or rot

The failure pattern is predictable: goals set in January are stale by June, ratings negotiated in December, and payouts that arrive as opaque percentages explained by nobody. The versions that work keep scorecards short (three to five measures people can recite), refresh goals when reality moves, publish the curve so outcomes are predictable, and pay promptly with the arithmetic shown. An STI someone can forecast in October is an incentive; one that is a December surprise is a lottery with paperwork.

The payroll footnotes

STI payments interact with the usual machinery: tax withholding treatment for lump sums, superannuation in Australia (performance bonuses are generally ordinary time earnings), and plan rules about part-years, leave and exits, the classic dispute being whether someone employed for eleven months of a strong year receives eleven twelfths or nothing. Write the pro-rata and leaver rules before they are needed; they will be needed.

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Related terms

Long-term incentive (LTI)Variable payBonus vs commissionMerit increaseAll terms ›
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Common questions

What is a typical STI target?

Commonly 10-20% of salary for professional roles, rising toward 50%+ for executives, with the mix shifting toward company measures as seniority rises. The right level is the one that is material without destabilising income.

Does an employee who resigns before payment receive their STI?

Whatever the plan rules say, which is why they must say something. Common designs require employment at payment date, with carve-outs for redundancy and retirement; courts in several jurisdictions have implied entitlements where rules were silent or discretion was exercised unreasonably.

This page is general information, not legal advice. We check figures annually and update them on a best-efforts basis, but employment rules change and we cannot promise everything here is current or complete. Before you act on it, confirm the detail with the official source for your jurisdiction or your own adviser. Last reviewed July 2026.