Bonuses and performance-based pay in Estonia
19.12.2025
Ilmar Põhjala, Figure Baltic Advisory partner and leading analyst
Variable pay is part of the Estonian wage policy culture. A good child has many names: bonus, additional pay, performance-based pay or 13th salary. Since different organizations use different terms to describe the same type of variable pay component, for the sake of clarity, we should start by defining what each term means in the context of this article.
A bonus is a monetary payment that is not generally linked to an individual's results or performance. As a rule, it is linked to the organization's successful financial results – for example, we had a very successful year and therefore we are sharing our organization's success with all our employees.
A performance bonus is also a monetary payment to a bank account linked to the achievement of various goals set for an individual, a team, or the entire organization.
By bonus, we mean a payment that is usually made for additional work tasks or responsibilities performed during a certain period.
A typical example of confusion between these terms is when bonuses are referred to as performance pay in organizational parlance. Employees worked hard and contributed differently throughout the year, but in December, they all received the same amount of "performance pay."
The frequency of payment distinguishes a bonus from performance pay
Bonuses are typically paid monthly along with the base salary. Bonuses are usually paid at the end of the year or at the end of a long-term important project.
With performance pay, things are much more varied. Short-term performance pay can be paid monthly, quarterly, semi-annually, or annually. Long-term performance pay periods start after a period longer than one year. Often, the latter are not directly measurable in monetary terms, but rather take the form of various share or option schemes, the actual monetary value of which depends on the moment of their realization in the future.
The frequency of performance pay depends largely on the salary schemes common in the sector. For example, in manufacturing and retail, it is common to pay monthly performance pay to workers and skilled workers. In manufacturing, the approach is "low base salary and the opportunity to earn decent performance bonuses," which helps to mitigate risks. The risk may be the loss of some employees for a longer period or a decline in orders. In sales, people with lower base salaries are motivated to be more active in their work.
At the management level, quarterly and annual performance bonuses are becoming more prevalent. This is understandable, as managers need to plan their activities further ahead than just one month.
Is it worth paying performance-based bonuses?
There is no single answer to this question. It depends on the sector and the complexity of the specific employee's work, their responsibilities, and the scope of their decisions. The metrics of a performance-based pay scheme should be measurable, specific, understandable to everyone, and, most importantly, support the overall strategy of the organization.
It is not worth implementing a performance-based pay scheme just because "others have it, so maybe we need it too." If you can't come up with reasonable metrics to measure the performance of most of your employees, then it might be better to skip the performance-based pay scheme altogether and increase base salaries or consider paying bonuses at the end of the year. Everyone will have a clearer picture.
And finally, some numbers
To keep things from getting too dry, here are some numbers from this year's Estonian Salary Survey. These are the percentages of variable pay in total annual salary, showing what percentage of the total amount earned during the year is made up of various performance bonuses, premiums, etc.
The average variable pay share in Estonia is 8.7%. The highest, at 13.6%, is in the sales sector, and the lowest, at 4.9%, is in the IT and telecommunications sector. There can also be large differences within a single sector. For example, in organizations engaged in the sale of cars and heavy equipment, the share of variable pay is 20.6%, while in retail organizations it is 7.0%.