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An incentive is extra compensation paid to key employees to reward high performance. The incentive is typically a bonus paid in cash or stock or stock options.

Expanded Definition

Some companies have been known to reward employees with new cars (such as Mary Kay Cosmetic's famous pink Cadilacs), special company paid vacations, or a variety of gifts.

Sales personnel are often rewarded with commissions on the products they sell, a direct incentive system. Old hands tell you that a straight commission system can be lucrative in the hands of an experienced salesman. (But most companies balk at paying salesmen more than their executives earn.)

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