When it comes to motivating employees and driving performance, few tools are as powerful as incentive pay. But with so many variations, choosing the right one for your business can feel overwhelming.
In this guide, we break down the types of incentive pay, explain how they work, and offer examples to help you choose the most effective model for your goals.
Incentive pay, sometimes referred to as performance pay or incentive-based pay, is additional compensation awarded to employees when they meet or exceed performance targets.
This pay structure is designed to:
Boost employee motivation
Align individual performance with business goals
Reward excellence and productivity
Incentive Pay Definition: A financial reward provided on top of base salary, typically tied to specific performance metrics or outcomes.
What is incentive pay? It’s not just about bonuses - it's a strategic tool to drive behavior, increase engagement, and retain top talent.
Drives performance through clear reward structures
Improves goal alignment across departments
Reduces fixed costs by tying rewards to actual results
Encourages retention by recognizing top performers
👋 Want to build a custom incentive pay plan that aligns with your business?
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Understanding the various forms of incentive pay will help you determine which is best for different roles in your organization.
Rewards based on personal KPIs or performance metrics.
Incentive pay examples:
A sales rep earns a $2,000 bonus for surpassing their monthly revenue target.
A customer success manager receives a quarterly bonus for achieving a 95% retention rate.
🔁 Best for: Sales, customer service, and performance-driven roles.
Bonuses or rewards split across a team when shared goals are hit.
Team-Based Incentive Example: A product development team receives a collective bonus when they deliver a feature ahead of schedule and under budget.
🔁 Best for: Cross-functional teams, project-based work.
Employees receive a percentage of company profits, typically distributed annually.
Profit Sharing Example: A company allocates 10% of annual profits to a bonus pool divided among staff based on tenure and salary level.
🔁 Best for: Small businesses or startups seeking alignment and loyalty.
Compensation based on a percentage of sales or revenue generated.
Commission-Based Pay Example: A sales rep earns 5% commission on all new deals closed.
🔁 Best for: Revenue-generating roles like sales or business development.
📥 Need help structuring commissions? Download our free commission plan template →
One-time rewards given for exceptional contribution, effort, or initiative.
Spot Award Example: An employee receives a $500 bonus for proposing a workflow automation that saves the team hours of manual work.
🔁 Best for: Boosting morale and encouraging innovation.
| Type of Incentive Pay | Best For | Triggers | Example |
|---|---|---|---|
| Individual Performance Bonus | High-performing individuals | Achievement of personal KPIs | $2,000 bonus for exceeding a quarterly target |
| Team-Based Incentive | Collaborative or project-based teams | Team goal achievement | $10,000 split among a dev team for early product launch |
| Profit Sharing | All employees | Company profitability | 10% of annual profit distributed across the company |
| Commission-Based Pay | Sales reps, business development | Revenue or sales generated | 5% commission on closed deals |
| Spot Awards | All employees | Exceptional contribution or effort | $500 bonus for solving a critical issue or improving a process |
| Incentive-Based Pay (General) | Any role | Predefined performance thresholds | Tiered bonus structure for hitting milestones (e.g., projects, sales, etc.) |
Considering a new plan? Start by estimating costs and potential payouts with an incentive pay calculator.
This can help you:
Budget your incentive program
Compare incentive models
Forecast ROI on performance-based pay
✅ Bentega offers real-time compensation modeling tools that take the guesswork out of pay planning.
Balancing pay and incentives is key. Over-reliance on incentives can create pressure, while too little reward fails to drive performance.
Here’s a good starting framework:
60–70% base salary
30–40% incentive pay, depending on role and seniority
Each business needs its own strategy. A strong incentive pay plan reflects your culture, goals, and people.
📊 Want to explore the best model for your team? Try Bentega’s incentive plan builder →
There's no one-size-fits-all approach to incentive compensation. The right model depends on:
Your business goals
Your team structure
The metrics that matter most
Whether you're looking at performance pay, team incentives, or sales commissions, the most important thing is clarity and consistency.
Ready to build a scalable incentive plan that actually works?
Get started with Bentega today - book a demo or chat with our team →
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Bentega helps businesses design, manage, and optimize custom incentive pay plans for high performance. Learn more at Bentega.io.