Incentive compensation refers to additional pay or rewards given to employees based on their performance or the achievement of specific goals. This type of compensation can include bonuses, commissions, or stock options, and is designed to motivate employees to work harder and align their efforts with the company's objectives. Companies often use incentive compensation to attract and retain talent, as it can enhance job satisfaction and encourage productivity. By linking pay to performance, organizations aim to create a culture of accountability and reward high achievers, ultimately driving overall business success.