Types of Incentive Pay: Which One Is Right for Your Business?

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.

What Is Incentive Pay?

Incentive pay, sometimes referred to as performance pay (pay-for-performance) or 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. If you want the full picture of how incentive pay fits into bonuses, commissions and KPIs, start with our Incentive Compensation guide.

Benefits of Incentive-Based Pay

• 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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Common Types of Incentive Pay (With Examples)

Understanding the various forms of incentive pay will help you determine which is best for different roles in your organization.

1. Individual Performance Bonuses

Individual performance bonuses 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.

For deeper coverage of how to structure, calculate, and govern bonuses specifically, see our bonus compensation guide.

2. Team-Based Incentives

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.

3. Profit Sharing

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.

4. Commission-Based Pay

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 →

5. Spot Awards or Recognition Bonuses

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.

Comparison Table: Types of Incentive Pay

Using an Incentive Pay Calculator

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.

Pay and Incentives: Finding the Right Mix

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 →

Conclusion: Which Incentive Pay Plan Is Best?

There’s no one-size-fits-all approach to incentive compensation – our Incentive Compensation guide walks through the main models so you can choose the right mix for your business. The right model depends on:

• Your business goals

• Your team structure

• The metrics that matter most

Whether you're looking at performance pay structures, team incentives, or sales commissions, the most important thing is clarity and consistency.

After you’ve chosen the right mix of incentive pay types, centralize the rules and payouts in incentive compensation management software so your plans stay consistent, auditable, and easy to adjust.

Ready to build a scalable incentive plan that actually works?
Get started with Bentega today - book a demo or chat with our team →

Explore More

• Incentive Compensation
• Sales Commissions
• Commission Structures
• Annual Incentive Plan
• Short-Term vs Long-Term Incentives
• Employee Incentive Plan
• Sales Incentive Plan: Structuring Commission for High Performance
• Performance Metrics for Incentive Compensation: What to Measure
• Common Mistakes in Incentive-Based Compensation and How to Avoid Them

Bentega helps businesses design, manage, and optimize custom incentive pay plans for high performance. Learn more at Bentega.io.