Ibanez can make up to $4 million total with the incentives, the sources said.
The Yankees plan to use Ibanez as a left-handed designated hitter, a source told ESPNNewYork.com's Andrew Marchand last week.
"He's a guy that's hit right-handers very well over his career, can still play the outfield," Yankees manager Joe Girardi said Monday. "Has been a productive player if you look over the last 10 years."
The Yankees, in part, favored Ibanez over other free agents, like Johnny Damon, because they think he can play defense. With Ibanez' numbers similar against right-handed pitching as other free agents that added element gave Ibanez the tie-breaker. The Yankees feel Ibanez gives them a little more depth.
The Yankees were to receive $5 million in salary relief from Pittsburgh this year which they could use in part to sign Ibanez.
Ibanez, 39, hit .256 with 16 homers and 60 RBIs against righties in 2012 for the Phillies. Ibanez will play against righties, but will sit a lot against lefties because Alex Rodriguez and Derek Jeter, among others, will take half-days as DH.
Ibanez should be able to maintain one of the Yankees' strong suits from last season. According to the Elias Sports Bureau, the Yankees had 317 at-bats by designated hitters from the left side of the plate last season, most of them (235) by the now-retired Jorge Posada. Their .486 team slugging average by lefty DHs ranked fourth in the American League in 2011, behind the Red Sox (.544), Rangers (.511) and Tigers (.510).
New York also has an offer out to re-sign backup infielder Eric Chavez.
Information from ESPN The Magazine's Buster Olney, ESPNNewYork.com's Andrew Marchand and The Associated Press was used in this report.