What is Incentive Pay?

Incentive Pay Plan Definition
An incentive pay plan is a part of a compensation plan that rewards higher productivity with bigger pay. Based on company policy, incentives may either be based on individual performance or the performance of the firm as a whole.

Extended Definition
Incentive pay plans are also known as pay for performance or variable pay plans. These refer to compensation in addition to base wages. They can help motivate employees to perform their best and boost company profits. Incentive pay plans offer workers a chance to increase their annual pay based on the overall business performance or individual performance.

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Types of Incentive Pay Plans