Strategic Compensation: A Human Resource Management Approach, 9/e

Contrasting Incentive Pay with Traditional Pay

1. 2 Describe the differences between incentive pay methods and traditional pay methods.

In traditional pay plans, employees receive compensation based on a fixed hourly pay rate or annual salary. Some companies use incentive pay programs that replace all or a portion of base pay in order to control payroll expenditures and to link pay to performance. Since 1998, there has been a 47 percent increase in the use of incentive pay programs. Companies use incentive pay programs in varying degrees for different kinds of positions.⁷ Nowadays, most companies use a mix of traditional and incentive pay methods. The mix has steadily changed. In 1998, traditional pay increases totaled 4.2 percent of payroll while ...