HR Glossary  >   Incentive Pay

Incentive Pay

What is Incentive Pay?

Incentive pay is a type of variable pay offered to the employees as a reward for accomplishing the set performance objectives or going beyond them. It is widely used by companies and is specified at the beginning of the pay period to inspire, motivate and enhance the employee’s performance. Mostly, the incentive pay is based on the X and Y axis, which are business performance and employee performance.

For example,

  • A company provides incentives for the sales department employees if they achieve the sales target and goes beyond it.
  • A sales executive reached his monthly target and even made sales above them.
  • As a result, he was given a bonus for his excellent performance.


Frequently Asked Questions

What are the types of incentive pay?

As per the company, the incentives given can be different. Some of them are:

  • Cash rewards or other monetary rewards
  • Non-monetary rewards
  • Company stocks
  • Paid vacation
  • Insurances
  • Commissions
  • Gifts

What are the benefits of providing incentives to the employee?

There are multiple benefits of providing incentives. Some of them are:

  • Motivated and satisfied employees
  • Increased employee retention ratio
  • Better employee performance
  • Achievement of organizational goal

Are there any adverse effects of providing incentives?

When incentives are provided without prior planning, it can increase the costs to the company. Also, it can be a demotivating factor for employees who don't receive any incentive. Additionally, even though incentives are provided, some employees can choose to leave the company when offered greater pay.


What type of incentives are preferred mainly by employees?

As per different surveys, employees mostly prefer monetary incentives. Most of the time, employees want some financial gains, whether direct or indirect.

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