Incentive Pay has been referred to by many different names – variable pay, performance based pay, bonus and so on. High growth markets like India are harnessing the potential of variable pay as a motivating tool for employee performance as well as retention. However, there is a fair degree of complexity due to the various provisions present within plans and the manner in which they are designed to be optimal use. In order to understand this concept better it is essential to assess what are the various reasons for which this is given to an employee –
1. The most common reason is performance, since when an employee meets his or her preset performance goals, this is paid out as a financial reward for contributing to the company’s success. One can further segment it here into annual bonus, sales incentives or commissions, spot incentives and so on. This is not fixed and is also known as pay at risk.
2. Another reason is Sign-on or Joining Bonus which some organizations give to new employees who are joining the firm. The reasons could be discretionary....