There are four basic types of incentive systems:

1. Personal pay, which is based on the individual compliance with rules or directives. Usually, personal pay-based systems take the form of a contract through which employee behavior is measured regarding people coming on at a particular time and then working for some hours.

2. Skill-based pay, which is based on merit, and is usually measured regarding formal education and seniority. It is the basis for payment in most organizations, whether private companies or public organizations.

3. Bonus-based incentives, which are based on individual performance, are rooted in a management-by-objectives philosophy. Goals, which are derived from the organizational goals, are set for employees, and rewards are distributed based on performance which is compared to preestablished targets or goals.

4. Profit sharing is based on giving both a fixed bonus and a share in the profits to the group (team, a division, department, or another subunit; it could also be the whole organization). People are rewarded by productive collaboration with others to yield high performance on the part of the group.