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What is incentive compensation?

Incentives are methods of motivating people, not just rewarding them for their work but giving them a reason to work harder and achieve results. Incentives can come in many forms, including monetary incentives, which are often employed in sales teams. Incentive compensation is a popular and effective way of motivating sales teams. It's used to drive sales and motivate teams by tying sales activity to the compensation that team members receive. Any business that wants to motivate their teams and drive sales can benefit from implementing incentive compensation to grow their sales and drive better results.

The Definition of Incentive Compensation

Incentive compensation includes compensation methods that tie at least part of a person's pay to the results that they achieve. It will often be referred to as commission, being the extra pay that salespeople are given for each of the sales that they close. 90% of top-performing companies use incentive programs to reward their sales associates, showing that it's one way of effectively motivating people to perform. Incentive compensation can motivate people to not just carry out their basic duties but also go above and beyond to overperform and deliver even better results. It can help to ensure employees meet their quotas and surpass them.

Examples of Incentive Compensation

There are various ways incentive compensation can be implemented to motivate team members. Different models can help to produce different results and motivate people in varying ways.

Spot awards

Spot awards include both financial or other incentives that are given in recognition of short-term performance achievements. They are usually smaller than some other types of incentives because they are designed to offer rewards in the short term. A spot award example is giving out a bonus to your top performing sales representative each quarter.

Profit sharing

In a similar way to gainsharing, profit sharing gives employees the chance to benefit from a share of the company's profits. However, there is a slight difference in that instead of being rewarded for individual performance, employees are rewarded for the overall profitability of the business.

Gainsharing Plan

A gainsharing plan is a type of incentive compensation involving offering financial shares of the business gains to employees. When their performance results in higher gains for the business, those profits can be shared among the individuals who helped to make it happen.

Retention bonuses

Retention bonuses can be used to help reduce employee turnover and encourage employees to stay with the company for longer. They are given to employees as a bonus upon completion of a certain pre-agreed period with the organization.

Annual incentives

Annual incentives are usually given in the form of yearly bonuses. They are awarded to employees at the end of the financial year as single bonuses that are calculated based on the performance of the employee during that year. Some types of incentive compensation are designed to be awarded regularly, while others are less frequently given.

All types of compensation can help to motivate employees to meet their goals and perform to exceptional standards. Kinitro can help you to build your team incentive plans so your organization can motivate your teams in the right way.