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March 22, 2010
Different Types of Incentive Pay Defined

In a BLR webinar entitled ‘Incentive Pay: Best Practices for Designing and Managing Pay-for-Performance Plans’, Dan Kleinman explains that there are different types of incentive pay found within an organization and these include:

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  • Piece rates: Employees are paid a set amount for each unit (‘piece’) of production
  • Commissions: Employees earning commissions are paid in whole or in part based on a percentage of their sales made
  • Merit pay: Merit pay features incentives given on the basis of measurable and observed improvements
  • Skills-based pay: Skill-based pay is compensation based on work-related skills gained
  • Profit sharing plans: In profit sharing plans, employees’ pay is tied to the profits of the organization
  • Gain sharing plans: Gain sharing plans provide a share of the savings or gains earned by an employer

Dan Kleinman is the principal of Dan Kleinman Consulting, a California-based compensation and human resource consulting firm. For the past 18 years, he has served as an independent consultant for a broad spectrum of regional, national, and international companies, providing compensation, performance, organizational planning, and reward-system design services. He can be reached at

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