How to calculate incentive pay

Goals and targets can be based on various different factors, such as employee performance, team performance, or even company performance.

• Select the pay structure

To select the pay structure you must determine the amount of money to be paid as incentive pay and any caps or limits on the pay. This normally comes in the form of a percentage of the employee's salary, like 5% or 0.50 in formula form.

• Track employee performance

You then have to regularly monitor the employee or employees and track their progress towards the goal or target.

• Formula for incentive pay

Incentive pay = (Employee's base salary) x (Incentive pay percentage)

• Formula for incentive pay based on sales commission

If you are incentivizing your sales employees you can use a formula for incentive pay based on sales commission. To do this you must first determine the total sales made by the employee, then determine a bonus percentage, and financially multiply the total sales figure by the total bonus percentage.

Here is the formula for incentive pay based on sales commission:

Incentive pay = (Total of sales made by the employee) x (Total bonus percentage)