Incentive Pay - Meaning & Definition

Published in Human Resources Terms by MBA Skool Team, Last Updated: May 05, 2013

What is Incentive Pay?

Incentive Pay or Pay for performance is the term given for monetary benefits or salary given as an addition to the normal day to day salary or work. There are a number of ways in which incentive pay is given to the employees some are bonuses, profit sharing, commissions, special reward recognition, stock options etc.

Incentive pay schemes are adopted by many corporations in order to improve the employee morale, and increase the want to work for the employees. Based on performance measures and metrics defined by the human resources of the specific organization incentive plans are devised and the specific mode of incentive is decided.

Incentives can further be classified as casual incentives and structured incentives. Casual incentives are when companies give a small token of appreciation or gift for an outstanding performance in a given quarter. Structured incentives are more done on a regular basis, like giving a specific percentage of achieved number of sales by a particular salesman.

A sample incentive pay scheme (incentive shown in bold):

  • Fixed salary : 9000
  • Family separation allowance: 1000
  • Stock Options : 1000

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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