Incentive  means all measures which  are used to motivate people to improve performance. Management uses financial and non-financial incentives to motivate its employees.


Financial Incentives:

Financial incentives are the incentives which are in direct monetary form or measurable in monetary term and serve to motivate people for better performance . These can be provided on individual or group basis.

Financial incentives can be used to satisfy physical needs of daily life and social needs.

The financial incentives mostly used in organisations are:

  1. Pay and allowances:

For every  employee, salary is the basic  monetary incentive. It includes basic pay, dearness and other allowances, regular increments in the pay and allowances from time-to-time sometimes linked to performance.

  1. Productivity linked wage incentives:

There are various wage incentive plans which aim at linking payment of wages to increase in productivity at individual or group level.

  1. Bonus:

Bonus is an incentive offered over and above the wages salary to the employees.

  1. Profit Sharing:

Profit sharing means to provide a share to employees in the profits of the organisation. This serves to motivate the employees to improve their performance and contribute to increase in profits.

  1. Co-partnership / Stock option:

Under these incentive schemes, employees are offered company shares at a set price which is lower than market price. The allotment of shares creates a feeling of ownership to the employees .

In Infosys the scheme of stock option has been implemented as a part of  managerial compensation.

  1. Retirement Benefits:

Several  retirement benefits such as provident fund, pension, and  gratuity act as incentives for in-service employees ,by making a promise to provide them financial security after their retirement.

  1. Perquisites:

In many companies perquisites and fringe benefits are offered such as car allowance, housing, medical aid, and education to the children etc., over and above the salary.


Non-Financial Incentives:

Psychological, social and emotional needs of individuals are satisfied by not by money alone but by providing them with non financial incentives.

Sometimes, monetary aspect may be involved in non-financial incentives as well.

Example: if an individual gets promotion in the organisation, it satisfies him psychologically more as he gets a feeling of elevation, increase in status, increase in authority, challenge in the job etc., Though promotion involves payment of extra money, non-monetary aspects over-ride monetary aspects.

Common Non-monetary incentives:

  1. Status:

In the organizational context, status means ranking of positions in the organisation. It includes authority, responsibility, rewards, recognition, perquisites and prestige of job of an employee.

Psychological, social and esteem needs of an individual are satisfied  by status given to their job.

  1. Organisational Climate:

Organisational climate indicates the special characteristics of an organisation such as individual autonomy, reward orientation, consideration to employees etc. These characteristics influence  the behaviour of individuals in the organisation.

  1. Career Advancement Opportunity:

Every individual wants to improve their skills and be promoted to the higher level in the organisation. Appropriate skill development programmes, and sound promotion policy will help employees to achieve promotion which works as a tonic and encourages employees to exhibit improved performance.

  1. Job Enrichment:

Job enrichment means jobs including greater variety of  work content that requires higher level of knowledge and skill; giving workers more autonomy and responsibility; and providing them opportunity for personal growth and a meaningful work experience.

  1. Employee Recognition programmes:

Need for evaluation of their work and due recognition are what most of the employees want. Recognition means acknowledgment with a show of appreciation.

Some examples of employee recognition are:

  • Congratulating the employee for good performance.
  • Displaying on the notice board or in company news letter about the achievement of employee.
  • Installing award or certificate for best performance.
  • Distributing mementos, complimentary gifts like T-shirts, diaries, pens etc. in recognition of employee services.
  • Rewarding an employee for giving valuable suggestions.
  1. Job security:

Employees want certain stability about future income and work so that they do not feel worried and work with greater zeal. However, there is one negative aspect of job security. When people feel that they are not likely to lose their jobs, they may  become lethargic.

  1. Employee participation:

It means involving employees in decision making of the issues related to them. In many companies, these programmes are in practice in the form of joint management committees, work committees, canteen committees etc.,

  1. Employee Empowerment:

Empowerment means giving more autonomy and powers to subordinates. It makes people feel that their jobs are important. This feeling contributes positively to the use of skills and talents in the job performance.

Check for More Posts in This Category