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Introduction to Incentives

Incentives can be said as a strategy of the company to encourage the employees to work better. With the attraction of the incentives, the employees achieve the organizational goal in the process. The incentives can be in monetary form or non-monetary form. They are nothing but a push to the employees to make them work harder with efficiency.

In this context itself we will delve further on the topic of ‘Incentive’. It includes the true meaning, types of incentives and its usefulness to the employees in our discussion.

Incentive Meaning

An incentive is such a factor that motivates or has a driving force upon someone to do something or behave in a certain way of fulfilling the task. In a company, human decision is affected by two major types of incentives – Intrinsic and Extrinsic Incentives. 

Intrinsic incentives motivate a person to do something based on their own self-interest or own desires, this is void of any outside pressure. While, extrinsic incentives are the ones which are motivated by rewards like the increase in payment for achieving a certain result or avoiding the disciplinary actions punishments for not doing any wrong. Or not being criticised is another extrinsic motivation. 

Some examples of extrinsic incentives are appreciation letters, monetary bonuses, or even withholding a pay for less work done. While the intrinsic motivation is learning a new language to be able to speak in the foreign countries.

In Personnel Economics, incentives are the most studied area where the HRM team evaluates and analyses the investment scheme done by the firm to its employees.

Financial Incentives

A financial incentive deals with money, which is given by the company, or organization to encourage certain behaviors or actions of the employees. This financial incentive or monetary benefit, motivates certain positive behaviors or actions. A financial incentive may also be a monetary benefit that a company offers its customers or employees. 

The term ‘incentive’ may mean also to encourage members to cooperate or to provide information. In a financial incentive, money is offered to encourage actions or behaviors that would not be possible without these incentives. The law dictionary states the exact definition of the term: “A benefit given to customers or companies to get them to do something they normally wouldn’t. It is money offered to get them to try something new. The event might not have happened without the incentive.”

Financial Incentive Programs are also held that encourages great productivity among the employees. Financial Incentives can be in the form of – Stock Options, Profit Sharing, Raises, Bonuses and Commissions 

Monetary Incentives

Monetary Incentives are used by employers to motivate employees towards meeting their targets. As Money is the symbol of power, status and respect, monetary incentives play a big role in satisfying the social–security of the employees and physiological needs of a person. But monetary incentives seize to be an incentive when the psychological and security needs are satisfied. 

This is to be understood by the business owners that monetary incentives are only the mere motivators that encourage the employees to meet their goals but this does not guarantee quality out-come nor it guarantees loyalty and dedication of work by the employees.

Some Monetary Incentives Are As Follows: 

  1. Piece Rates

  2. Pay Rise

  3. Bonuses

  4. Sharing profit

  5. Contests 

Incentives for Employees

For an employee incentive is an object, item of value, that is pleasured by him. This incentive is achieved by acting in predetermined actions. Incentive motivates the employees to work and achieve the goals, they follow the direction of the employer for achieving the target and this is pushed by the incentives only. There are four kinds of incentives available for the employees are –

  1. Compensation – Incentives such as raises or bonuses. These are basically the monetary incentives.

  2. Recognition – Popularity at work gained due to appreciation of quality work will feed the ego of an employee. 

  3. Rewards – Such as gifts, monetary awards, or items such as gift certificates.

  4. Appreciation – Social parties of work place, family events paid by the company, ice cream socials and sponsored sports team 

Incentive Motivation 

Being motivated is totally a human behavior, this will depend from employees to employees. This is basically the human behavior that responds to various kinds of motivation. Incentive is a way to keep the employees motivated and through which they can achieve the target of the company. 

Interestingly, there is a whole theory about the Incentive Motivation which is known as – Incentive Motivation Theory.

The theory of Incentive Motivation tells that people get motivated with the driving force of the incentives that they receive by working hard in order to achieve their target. Incentive Motivation makes the people believe that if they work in a determined way, they will gain reward while if they work in an opposite way, they will attract punishments. 

Thus, Incentives can be both negative and positive as well. It all depends upon the policy of the HR team of the company.

FAQ (Frequently Asked Questions)

1. Is money and incentive different?

Money is a part of Incentive. Incentive is a broad term where money is also a factor. Incentives can be non-monetary as well as monetary. 

Whereas, when we talk about incentive, we always have this idea that it is related to money but in many cases, there are other popular non-monetary incentives as well which can be implemented successfully as well.

2. Are incentives always positive?

In the theory of incentive motivation, there are positive and negative incentives. Positive incentives means the rewards, applause, credits, acknowledgement, raise in pay scale, bonuses that are received by an employee after achieving a set target. 

While, negative incentives make the employees to achieve targets in fear of punishments, criticism, demotion. Either way the incentives help the company to achieve their results.

3. What kind of incentives are used in general?

In general, companies prefer to give monetary incentives. But the monetary incentives work till a certain level only. Once the employee’s social needs like a good quality life is fulfilled, they are now not motivated with the monetary incentive. Hence, this depends completely on the HR team which type of incentive is implemented on which type of employees.

4. Give an example of some non-monetary incentive.

Examples of non-monetary incentives are:

  • Gifts

  • Certificates of appreciation

  • Trips to foreign countries, etc.