What is Incentive pay?

By Abhishek Kathpal | Updated 28 July, 2022

Motivational tools used by organizations to cater to the welfare of their employees can come in different forms with the sole aim of reinforcing employees' engagement and effectiveness. Incentive pay is one of the effective tools adopted to boost employees' morale and increase productivity.

What is Incentive pay

Incentive pay meaning and definition

Incentive pay is merit-based pay that is not based on a set salary or hourly rate and is typically linked to the accomplishment of performance goals, milestones, or objectives. Payments made to employees of an organization in the form of incentives might be in cash or kind. It may also be granted by an individual's performance or the effective work of a team. A sort of financial remuneration known as incentive pay is used to encourage employees to meet set financial or performance goals.

Forms of Incentive pay

a) Casual incentives are smaller-scale rewards and acknowledgments, such as a non-financial gift or a modest cash bonus for achieving a goal. They are often a less formal kind of incentive payout and can be given at any moment.

b) Structured incentive: In pay incentive programs, structured incentives are clearly stated and often consist of a monetary prize provided as a percentage of a production or sales objective that has been met.

Benefits of Incentive pay

a) Increased engagement

b) Effectiveness

c) Efficiency

d) Satisfaction

e) Increased productivity

f) Absorption

g) Commitment

Downsides of Incentive pay

a) Promotes personal gain.

Although incentive pay has the potential to be a powerful motivator, it is not always effective since employees may become more self-centered and concentrate on what they must do to succeed, often at the expense of their team or the organization.

b) Can be excessively pricey

If the costs of rewarding the individuals who take center stage exceed the company's budget, the overall cost to the business may be high.

Types of Incentive Pay

Monetary incentives:

a) Equity

b) Sign-on bonuses

c) Quarterly or yearly bonuses

d) Commissions

e) Stock shares

f) Debit card rewards (for rebates)

Non-monetary incentives:

a) Award or recognition

b) Flexible work

c) Special treats

d) Travel rewards

f) Wellness programs

About the Author

Abhishek Kathpal

Abhi is the co-founder at Longlist.io. Funded by US based OnDeck, Longlist is currently enabling 50+ businesses to increase their candidate and client reach outs, automating the workflow across stages.

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