Incentive compensation plans are considered powerful motivation tool in achieving the organization’s objectives. Incentives can focus employee attention on the organization’s goals. Incentive compensation is defined as,” compensation that is linked to performance by rewarding employee for actual results achieved instead of seniority or hours worked.” Incentives are introduced to support employee identification with the organization’s objective e.g. profit sharing. Rewards are related to employee achievement of goals to improve commitment and employee contribution to the organization’s overall success. Also incentives can be introduced to encourage individual or teamwork and employee cooperation. Rewards depend on certain outcomes that the employee or the team affects e.g. commission and piece-rate. Incentive compensation programs allow the organization to increase its remuneration competitiveness relative to other organizations. This signals to employees the organization’s willingness to reward high performance and help keep efficient employees. There are different types of incentives designed for individuals e.g. commission, small groups e.g. gainsharing and large groups e.g. bonus or profit sharing plans. Incentives are rewards given to employees who reach a certain established or agreed targets. Non–monetary incentives e.g. awards focus on recognizing employee special efforts, innovation and creativity. Incentive compensation programs can be short-term programs or long-term programs. Short-term programs focus on immediate results or performance in a short period of time e.g. project rewards and sales incentives. Longer-term programs involve the greatest number of organizational members and focus on long run performance and achievement e.g. profit-sharing plans and gainsharing programs.

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