Overview
What is it:
This is the set of three performance levels built into most short-term and long-term incentive plans that use performance conditions. Threshold is the minimum performance required for any payout at all. Target is the expected or on-plan payout level. Maximum is the payout cap regardless of how far performance exceeds the maximum trigger.
Why does it matter:
Reading a bonus plan or a PSU grant document requires understanding this full range, since it reveals your realistic range of outcomes, not just the headline "target" number that gets quoted in an offer letter. Threshold deserves particular attention. Missing it isn't a smaller version of missing target, it's the difference between getting some payout and getting none at all.
What do people most often get wrong:
People often treat the target number as the number. An offer letter will almost always headline the target value. The real range you should be evaluating runs from threshold (below which your payout could be zero) to maximum, because that's the actual range of outcomes the plan is designed to produce.