.svg)
Glossary Terms
Compass - The Only Sales Glossary You Need
An incentive compensation plan is a structured program implemented by organizations to motivate and reward employees for achieving specific performance goals and objectives.
Unlike fixed salaries, which provide a consistent level of income, incentive compensation plans offer employees the opportunity to earn additional income based on their individual or team performance.
An incentive compensation plan is a structured strategy employed by organizations to reward employees based on their performance and contributions towards achieving specific goals or objectives. Unlike fixed salaries, which provide a consistent level of income, incentive compensation plans offer employees the opportunity to earn additional income or rewards when they meet or exceed predefined targets.
Incentive compensation plans are designed to align employee efforts with the company's strategic priorities, such as sales targets, customer satisfaction metrics, or other key performance indicators. By linking compensation to performance, organizations aim to motivate employees, drive productivity, and ultimately enhance overall business success.
Nonequity incentive plan compensation refers to a type of incentive compensation where employees receive rewards or bonuses based on performance metrics, typically without granting them ownership or equity in the company. These plans often include cash bonuses or other financial incentives tied to individual, team, or organizational performance.
The key purposes of an incentive compensation plan include:
Here are some examples of incentive compensation plans:
Today, various compensation and incentive plans are used across industries, including:
The most effective incentive compensation plans share the following traits:
For sales teams, incentive compensation plans serve as a motivational engine. They drive behavior, encourage high performance, and align sales efforts with company growth.
A well-crafted plan reduces turnover, boosts morale, and provides clear financial targets. It’s not just about rewarding top performers—it’s about creating a results-oriented culture that drives long-term business success.
Sales organizations should introduce or revise their incentive compensation plans at the start of a fiscal year or sales cycle. Implementing an annual incentive compensation plan helps align sales goals with broader company strategies.
Mid-year adjustments may also be necessary if market conditions shift or product lines evolve.
The most effective plans are those that are simple, transparent, and aligned with company goals. Common types include commission-based plans, bonus-based structures, and hybrid models.
Non-equity incentive plan compensation is particularly useful for companies that want to avoid stock-based rewards but still drive high performance. Tailoring the plan to the sales cycle, role, and product complexity is essential.
To design a strong incentive compensation plan for your sales team:
An incentive compensation plan outlines specific criteria for earning rewards. These may include hitting sales quotas, closing deals in target markets, or retaining key accounts.
The structure can vary—from tiered commission rates to non-equity incentive plan compensation, where bonuses are based on pre-set goals rather than stock options. Many companies use incentive compensation plan examples from industry benchmarks to refine their models.
