Final answer:
Compensation plans that promote internal competition include merit-based pay, sales commissions, and individual performance bonuses, all of which encourage employees to outperform their peers in order to receive higher compensation.
Step-by-step explanation:
Compensation plans designed to foster internal competition often include features that incentivize individual performance over team performance. Specifically, Option 1: Merit-based pay increases and bonuses, Option 2: Sales commission-based compensation, and Option 3: Performance-based bonuses for meeting individual targets are all compensation plans that encourage employees to outperform their colleagues to receive higher pay or bonuses. On the other hand, Option 4: Team-based incentives for outperforming colleagues encourages group competition rather than individual competition.
Merit-based increases reward individuals for their effort and effectiveness, sales commission compensation is directly linked to the sales an individual employee generates, and performance-based bonuses reward individual accomplishments. These structures create an environment where employees are competing against each other to receive higher compensation. Competition in the workforce helps determine compensations, as wages often reflect the relative scarcity and demand for specific talents and skills.