The normal compensation and benefits package that an employee receives should align with market demand for that role, combined with the employee’s performance, seniority, and tenure with the company.
In special cases, an employee is called upon to perform additional work in order to meet the demands of business operations. This work may include additional hours or highly complex or taxing work. In these special cases, incentive pay refers to special compensation rewarded to the employee for either completing special work assignments or exceeding certain performance goals. Incentive pay can take the form of bonuses, stock options, performance based compensation, or one time pay expenses in the form of non-monetary awards for employee recognition.
Incentive pay programs and other “pay-for-performance” models of compensating for employee labor should be the exception rather than the rule; there may be tax consequences of such actions, so be sure to consult a specialist.