Incentive Pay Law & Legal Definition
Incentive pay a form of direct compensation where employers pay for performance beyond normal expectations to motivate employees to perform at higher levels. In structured incentives, workers understand ahead of time the precise relationship between performance and the incentive reward. In a casual approach, workers never know when a reward will be given. Three possible drawbacks to the casual incentive approach may include (1) jealousy among employees, (2) feelings among workers that the supervisor may be acting out of favoritism, and (3) the use of rewards to maintain social distance.
Some state laws, which vary by state, and federal laws, such as those dealing with federal grants, apply to extra compensation in the form of incentive pay. In general, federal grants do not allow extra compensation to be direct charged. Thus, it is unallowable to direct charge incentive pay to a federal grant.
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