Incentive pay is a type of wage or salary payment that is made to employees in addition to their normal wages or salaries. It is designed to motivate employees to work harder or to achieve specific goals. Incentive pay can take the form of individual bonuses, group bonuses, or profit sharing payments. It is often used in conjunction with performance-based pay systems, in which employees are rewarded for meeting or exceeding specific performance goals.

Incentive pay can be cash or non-cash payments to employees. It can be distributed to individuals based on personal job performance or to larger groups and departments when they meet shared goals. Incentive pay can also be structured or casual. Structured incentive pay is set by specific sales or production goals and paid to employees at a percentage or flat rate. Casual incentives can be non-financial, such as gifts or dinners that the employer has already paid for.

Incentive pay can be an effective way to improve employee performance and boost morale. However, it can also have downsides, such as encouraging employees to adopt overly aggressive sales styles or unethical practices. Incentive pay programs that don’t define success criteria could be susceptible to wage discrimination.

In summary, incentive pay is a type of compensation given in addition to base wages that can help motivate employees to perform their best. It is often used to reward individual employees for their performance or to boost productivity and general morale.