Incentive compensation is a type of pay structure that is based on how the business or employees perform. With this kind of a pay structure, employees may receive a base salary and extra reward for meeting a specified target. There are multiple performance measures that are used to determine who qualifies for an incentive.
Businesses use an incentive compensation plan to highlight the type and amount of reward each employee is supposed to receive for meeting the set target. When thinking about the incentive pay plan to adopt for their employees, companies have various options. These may include performance bonuses, stock options, profit sharing and merit-based raises, among others. Companies can also give employees non-monetary incentives like paid vacations and some days off.