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Overview of Employee Incentive Pay

Employees in approximately one-third of all companies are eligible for bonuses of some kind. Bonuses are given to employees to serve the following purposes: to create incentives to reduce costs; to pay people for doing a good job; and to encourage employees to think like shareholders.

Bonuses reflect employees' level of responsibility in the organization, making up a larger portion of ones total compensation as one takes on more responsibility. To ensure accountability and to reward an employee for his or her responsibilities, companies tie portions of employees' pay to both individual and company successes. Corporate triumphs take on greater importance in a given employee's bonus as the employee climbs the corporate ladder. This is because at higher levels of the organization, employees are more accountable for the success of the company.

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