HR Glossary

Incentive Pay

What is Incentive Pay?

Incentive pay is a type of wage or salary payment that is made to employees in addition to their normal wages or salaries. Incentive pay is designed to motivate employees to work harder or to achieve specific goals. It can take the form of individual bonuses, group bonuses, or profit sharing payments. Incentive pay is often used in conjunction with performance-based pay systems, in which employees are rewarded for meeting or exceeding specific performance goals.

What is a Bonus?

A bonus is an extra payment, over and above the employee’s usual salary, given to the employee as a reward for good performance or as an incentive to work harder. Bonuses may be given either as a one-time payment or as an annual bonus, and may be a fixed amount or a percentage of the employee’s salary. They are usually paid out either in cash or in shares.

How do you design an Incentive Pay system?

There is no one perfect way to design an incentive pay system, as the approach you take will be largely dependent on the specific goals you are hoping to achieve and the nature of your workforce. However, there are a few key considerations to keep in mind when designing an incentive pay system.

To start, it is important to ensure that the incentive pay system is aligned with the overall strategy of the organization. The goals of the incentive pay system should be clear and measurable, and employees should understand how they can earn rewards.

The incentive pay system should also be designed to motivate employees to achieve specific goals. The rewards should be meaningful and relevant to the employees, and they should be able to understand how their individual efforts contribute to the overall success of the organization.

Finally, the incentive pay system should be affordable for the organization. The rewards should be achievable without putting too much strain on the budget, and the administrative costs of the system should be reasonable.

How do you use Incentive Pay to improve performance?

Incentive pay is a system of rewards that is used to improve employee performance. The most common type of incentive pay is a bonus, which is a payment that is made in addition to the employee’s regular pay. Bonuses are usually given to employees who meet or exceed specific performance goals. Other types of incentive pay include commissions, stock options, and profit sharing.

Incentive pay systems are often used to improve performance in two ways. First, they provide employees with an incentive to work harder and meet or exceed performance goals. Second, they help to motivate employees by giving them a sense of ownership in the company’s success. When employees feel like they are contributing to the company’s success, they are more likely to work harder and be more productive.


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