Performance-based compensation is a pay structure where employees receive financial rewards based on their job performance. This system encourages workers to meet or exceed specific goals, such as sales targets or project deadlines, aligning their interests with the company's success. Common forms of performance-based compensation include bonuses, commissions, and profit-sharing. By linking pay to performance, organizations aim to motivate employees, improve productivity, and attract top talent, ultimately driving better results for the business and its stakeholders, including shareholders and customers.