Definition
(c) Incentive pay schemes linked to performance.
In detail
Incentive Compensation Plan (ICP) is a bonus mechanism that links pay to performance, aiming to motivate employees to achieve organizational goals; stock option eligibility is a separate approval item alongside ICP eligibility, not part of ICP itself. It addresses how to drive behavior and results through economic incentives and is closely related to performance appraisal systems, with its design aligned to strategic objectives. ICP typically outputs compensation plans, performance metrics, and payout rules.
Example in practice
When a company wants to improve sales team performance, an ICP is designed, linking bonuses to metrics such as sales revenue and customer satisfaction. For example, a software company sets quarterly targets for sales representatives, and bonuses are paid upon achievement. Through ICP, employees have clear direction, and the company achieves performance growth. ICP needs regular review to ensure incentive effectiveness aligns with market changes.