Incentive Pay: What It Is, How It Works, And How To Decide If It's The Right Fit For Your Business

Incentive Pay
5
min read
January 5, 2021

As a business owner, you want to incentivize your employees to do their best work. There are a variety of ways to inspire the best work from your team; for example, you can offer opportunities for growth within your company or invest in learning and development opportunities to help them gain new skills.


But sometimes, the best way to incentivize a higher level of employee performance? Through financial incentives.


Incentive pay can be an effective way to motivate your team and drive results. But it can also present its fair share of challenges—and, depending on your team and business model, it may not be the best pay structure for your business.


But what, exactly, is incentive pay? How does it work? And how do you determine whether an incentive program is the right fit for your team and organization?

What Is Incentive Pay?

First things first—before we jump into the different types of incentive pay plans, how they work, and how to determine whether they’re the right move for your business, let’s quickly touch on what, exactly, this type of pay is.


In addition to an employee’s base salary or hourly wage, an incentive plan offers additional rewards (either in the form of additional pay or non-monetary incentives) based on a set of predetermined metrics (for example, hitting a quarterly sales quota or shipping a certain number of items in an eight-hour shift).


The idea behind incentive pay plans is that the added incentive will push employees to work harder to hit the goal and get the reward—and when your employees work harder, they drive better results for your business.

What Are The Different Types Of Incentive Pay Plans?

So, the definition of incentive pay is offering added incentives to your team to inspire better performance. But not all incentive pay plans are alike, and before you decide to roll out an incentive plan at your business, it’s important to understand the different types of plans—and which would make the most sense for your business and your employees.


There are a few different types of incentive pay plans, including:


What Are The Pros And Cons Of Incentive Pay?

Clearly, incentive pay structures offer a variety of ways to reward your employees for a job well done. But, like anything else, there are benefits and challenges to rolling out an incentive pay plan at your business.


So, what are some of the major pros and cons of incentive pay?

Pros

Cons

Things To Keep In Mind When Developing And Implementing An Incentive Pay Plan

Clearly, there are pros and cons of implementing incentive pay at your business. But if you do decide that an incentive-based pay structure is the right fit for your business, there are a few things you’ll want to keep in mind to make sure the roll out is a successful one:

Bottom Line: Is Incentive Pay The Right Fit For Your Business?

When it comes to answering the question “is incentive pay the right fit for my business?,” there’s no one-size-fits-all answer. Incentive pay can be a huge win for certain businesses, driving productivity and performance—while that same pay structure can majorly hinder productivity and performance at another company.


Ultimately, only you can decide whether an incentive pay plan is the right fit for your organization. But if you’re thinking about offering incentive pay to your employees, it’s important to understand the different types of incentive pay, the pros and cons of each type, and how those pros and cons play out in your business—and use that information to make the best decision for your employees and your organization.

Track time. Save time.

Track time automatically, reduce payroll errors, increase productivity.

Free Trial

No credit card needed

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.