Short-term Incentives

reward-systems2Similar to contingent pay, incentives are allocated on past performance. But incentives are not added to the base pay, and are only temporary pay adjustments based on the review period (e.g., quarterly or annual). So incentives are one-time payments, and this is why they are also referred to as variable pay.

A second difference between incentives and contingent pay is that incentives are known in advance. For example, a salesperson in a pharmaceutical company knows that, if she meets her sales quota, she will receive a $3000 bonus at the end of the quarter. She also knows that if she exceeds her sales quota by 10 per cent, her bonus will be $6000. In contrast, in the case of contingent pay, in most cases the specific value of the reward is not known in advance.

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