Incentive compensation glossary

OTE, target variable pay, pay mix, variable pay

A compensation plan documents how employees are paid, including fixed pay, variable pay, eligibility, metrics, payout logic, and timing.

Eligibility defines who qualifies for an incentive plan, payout, bonus, commission, or variable pay program.

Plan rules, compensation plan, payout formula, approval workflow

Incentive compensation is performance-linked pay used to reward specific outcomes, behaviors, or business results.

It can include commissions, bonuses, SPIFs, OTE-based payouts, KPI incentives, Customer Success incentives, performance pay, and broader variable pay.

It covers the workflow from plan rules and source data to calculations, exceptions, approvals, statements, audit trail, and finance-ready outputs.

Rules may include eligibility, targets, rates, weights, thresholds, gates, caps, accelerators, payout timing, exceptions, and approval owners.

It can include bonuses, commissions, SPIFs, KPI incentives, performance pay, and other non-fixed compensation.

Commission is often used as the payout mechanism in sales compensation plans. It should be supported by clear crediting rules, rates, eligible revenue definitions, payout timing, and approval logic.

Commission payout is usually calculated from credited performance, commission rates, quota attainment, accelerators, caps, and other plan rules.

Commission, commission rate, quota, attainment, payout formula

A commission rate is the percentage or amount used to calculate commission payout.

Commission structure, quota, attainment, accelerator

Commission rate, accelerator, cap, split crediting

A commission plan should define eligible revenue, crediting, rates, payout timing, accelerators, caps, and approval rules.

Split crediting defines how sales credit or payout is shared between multiple people or teams.

Crediting rules, payout formula, exceptions, approval workflow

A bonus formula may use individual performance, company performance, team results, KPI achievement, weighting, gates, thresholds, or approval rules to determine payout.

Bonus, KPI incentive, payout formula, KPI weighting

Bonus, KPI incentive, performance pay, variable pay

Customer Success incentives are performance-linked rewards tied to customer outcomes.

They may support renewals, expansion, NRR, onboarding, adoption, customer health, retention, or other Customer Success goals.

An expansion incentive is variable pay tied to growing revenue from existing customers.

Expansion incentives may reward upsell, cross-sell, seat growth, product adoption, account growth, or net revenue retention. Clear crediting rules are important when multiple teams contribute.

On-target earnings is the full term for OTE.

OTE, pay mix, variable pay, quota

OTE stands for on-target earnings, or the expected total earnings when target performance is achieved.

Pay for performance is compensation linked to measurable performance, contribution, or results.

Pay for performance can include bonuses, commissions, KPI incentives, performance pay, and other variable pay models where earnings depend on outcomes.

Performance pay is compensation linked to measurable performance, outcomes, or contribution.

A renewal incentive is variable pay tied to customer renewals or retention outcomes.

Renewal incentives are often used in Customer Success and account management plans. They should define eligible renewals, timing, ownership, customer health rules, and payout logic.

Customer Success incentives, KPI incentive, performance pay, expansion incentive

A short-term incentive is a time-limited reward designed to motivate a specific action, outcome, or business priority.

SPIFs are a common type of short-term incentive. They are often used for campaign-based goals, product pushes, renewal focus, expansion activity, or quarter-end priorities.

SPIF, bonus, commission, performance pay

A SPIF is a short-term incentive campaign used to reward a specific action, outcome, or business priority.

Commission structure, quota, attainment, cap

A cap is a maximum payout limit.

A plan may require margin, customer quality, approval status, or minimum performance before an incentive payout applies.

KPI weighting defines how much each KPI contributes to the total incentive payout.

For example, a bonus plan may weight revenue at 50%, retention at 30%, and customer health at 20%. Weighting helps plan owners balance priorities and avoid over-rewarding one metric.

KPI, KPI incentive, bonus formula, payout formula

A metric is a measurable data point used to track performance, activity, outcome, or progress.

KPI, KPI incentive, target, performance pay

For example, a 70/30 pay mix means 70% of target earnings are fixed and 30% are variable.

Base salary, target variable pay, OTE

Attainment, OTE, commission, target

Targets can be based on revenue, bookings, margin, renewals, expansion, customer health, productivity, quality, or other measurable outcomes.

Quota, KPI, attainment, payout formula

OTE, base salary, pay mix, quota

An approval workflow defines who reviews and approves payouts, exceptions, or adjustments.

Payout approval, exception handling, audit trail

An audit trail is a record of changes, approvals, calculations, adjustments, and payout outputs.

Calculations are the process of converting plan rules, source data, performance results, and payout formulas into incentive compensation amounts.

Employee communication explains incentive compensation rules, results, payouts, and timing to employees.

Good communication helps employees understand eligibility, targets, plan rules, payout calculations, adjustments, statements, and when they can expect payment.

Exception handling is the process for reviewing special cases that do not fit standard plan rules.

Approval workflow, audit trail, manual adjustment, payout dispute

Exceptions are special cases that do not follow the standard incentive compensation rules.

Common exceptions include role changes, territory changes, split crediting, missing data, manual adjustments, disputes, ramp periods, clawbacks, or one-off approvals.

Finance-ready outputs are structured payout outputs prepared for downstream finance processes.

Manual adjustments should be documented, reviewed, and approved so the payout can be explained later.

A payout dispute is a disagreement about an incentive compensation calculation, eligibility decision, crediting rule, adjustment, or payout result.

Payout disputes are easier to resolve when plan rules, source data, calculations, approvals, exceptions, and audit trail are clearly documented.

Good payout statements help employees understand the rules, results, calculations, adjustments, and payout timing.

Payout timing defines when incentive compensation is calculated, reviewed, approved, and paid.

Clear payout timing helps employees understand when performance is measured, when payouts are reviewed, when approvals happen, and when payment moves downstream.

Payout visibility means employees, managers, and stakeholders can understand expected or final payout information.

Visibility helps reduce payout questions and makes incentive compensation easier to trust.