Incentive compensation refers to the financial benefits that are designed to incentivize an employee or a team to meet or exceed specific performance goals. This type of compensation comes in different forms such as sales commissions, bonus pay, profit sharing, stock options, and non-monetary rewards. In this post, we’ll answer the most common questions about incentive compensation.
Incentive compensation is a type of financial reward given by an employer for meeting specific performance objectives. It's designed to motivate and inspire employees and teams to achieve their goals and beyond.
Incentive compensation works by setting clear performance objectives for employees or teams. These objectives can be related to sales targets, production levels, customer service metrics, etc. Once these goals are achieved, employees or teams are rewarded with a financial incentive.
There are several types of incentive compensation that employers can choose from. These include sales commissions, bonus pay, profit sharing, stock options and non-monetary rewards such as vacations or gift cards.
Companies use incentive compensation programs for various reasons. The most common reasons include motivating employees to work harder and achieve better results and aligning employee goals with company goals.
Incentives are calculated based on several factors including the type of incentive program being used, the individual's performance history and their current results.
The advantages of using incentive compensation include increased motivation among employees, higher levels of engagement within teams and improved productivity across the organization.
Successful incentive programs include those that are well-designed with clear objectives and achievable targets. Examples include "employee-of-the-month" awards, year-end bonuses based on overall company performance, and employee referral programs.
