Legal Definitions - incentive pay plan

An incentive pay plan is a type of compensation plan that rewards employees for increased productivity with higher pay. This means that the more work an employee does, the more money they can earn.

• A salesperson who earns a commission on each sale they make is an example of an incentive pay plan. The more sales they make, the more money they earn.
• A factory worker who earns a bonus for meeting or exceeding production goals is another example of an incentive pay plan. The more they produce, the more money they can earn.

These examples illustrate how an incentive pay plan can motivate employees to work harder and be more productive. By offering a financial reward for increased output, employees are encouraged to put in more effort and achieve better results.