Incentive compensation glossary

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.

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

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

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

OTE, target variable pay, pay mix, variable pay

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

Plan rules, compensation plan, payout formula, approval workflow

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

Commission rate, accelerator, cap, split crediting

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

Commission structure, quota, attainment, accelerator

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

Crediting rules, payout formula, exceptions, approval workflow

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

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

On-target earnings is the full term for OTE.

OTE, pay mix, variable pay, quota

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

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.

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

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

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.

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

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.

Attainment, OTE, commission, target

OTE, base salary, pay mix, quota

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

Base salary, target variable pay, OTE

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

Commission structure, quota, attainment, cap

A cap is a maximum payout limit.

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

KPI, KPI incentive, target, performance pay

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

Quota, KPI, attainment, payout formula

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

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

Payout approval, exception handling, audit trail

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

Approval workflow, audit trail, manual adjustment, payout dispute

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

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

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.

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

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

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

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.

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.

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.

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.