incentive contracts

Incentive contracts are agreements where a seller or employee’s compensation is partly based on achieving specific performance goals. The purpose is to motivate better results by aligning their interests with those of the organization. For example, a salesperson might earn a bonus if they reach a sales target, or a contractor might get paid extra for completing a project ahead of schedule. These contracts help ensure that the party responsible for a task is motivated to perform well, reducing the risk that they will act in their own interest rather than the organization’s.