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Various Incentives To Motivate Employees

The working of human mind and human behavior even though complex can be simplified with the understanding of the right concepts. The working of the mind can be and has been learnt. We know that people across the world, rich and poor, educated and uneducated are driven by needs. Needs determine what people do.

It is this understanding that has culminated in the managerial process of motivation. Motivation when simply put is the art and science of understanding and satisfying the needs of a person so as to usher the person to work towards a set goal. Motivation can be both extrinsic and intrinsic. Of all the techniques of motivation, incentives have a special place in the process of management.

Employee Incentives That Actually Work

Incentives are measures designed and established to influence the behavior of an individual and to motivate people to improve performance. An incentive system informs the employees what the desired results for the organisation are and motivates the employees to function in such a manner so as to achieve and exceed these organisational goals. For an incentive system to be effective a certain number of critical factors have to be satisfied. These are:

  • The incentive system should be consequential, and should be more reward oriented than punitive.
  • These rewards provided by the system should be proportionate to the benefit accrued to the organisation.
  • The employees must be aware of the goals to be achieved to deserve the reward.
  • Rewards should be timely and prompt.

Incentives can be broadly classified as Financial Incentives and Non-Financial Incentives.

Financial Incentives.

Incentives with direct monetary benefit or an economic benefit capable of measured in money terms are known as Financial Incentives. The following are the financial incentives usually employed in various organisations.

  1. Pay and Allowance: This is the most basic of all incentives. It includes salary which is basic pay, dearness allowances along with other allowances such as House Rent Allowance among others. This system involves reasonable and regular increments in both the basic pay and the allowances. The increment system may be linked to the degree of performance.
  2. Productivity linked Wage Incentives: Organisations may develop wages systems solely determined by productivity. This may function in a manner such as, 500Rs for every 100 bottles sealed.
  3. Bonus: Bonus as provided by organisations are benefits provided over and above the salary or the wage system as mentioned above. Bonus is usually linked to a factor such as performance or year of experience among others.
  4. Co-Partnership/ Stock Option/ Profit Sharing: These incentive involve providing to the employee a share of the pie. Co-partnership involves bringing the employee into the crux of the business which is the partnership itself. Stock Option is a method used by companies whereby the shares of the company are provided at a rate more favourable than the market rate. Profit sharing involves providing to the employees a specified amount of profits so earned by the organisation in return for the work that they provide for the organisation.
  5. Retirement Benefits: Retirement benefits such as pensions or the company provident fund acts as powerful incentives. These benefits even though may accrue after service prompts the employee to work towards a better secured future.

  Non-Financial Incentives.

Incentives that focus on satisfying the non-monetary needs of an employee rather than focusing on providing a direct monetary benefit are known as Non-Financial Incentives. These incentives may or may not have a direct monetary effect but the main focus is on meeting the psychological, social or emotional needs of employees.

  1. Status: Status in an organisation represents the hierarchical structure of the organisation. Different positions have different responsibilities, duties and rights. The conferment of higher status is a very important non-financial incentive to motivate the employees.
  2. Organisational Environment: Humans like any other species require a conducive environment to thrive. This rule applies even to an organisation. Organisation environment may be referred to as the sum total of all those factors and characteristics that define and distinguish that organisation. A good organisational environment is necessary for proper motivation of employees. This may involve a cooperative managerial system, better working place etc.
  3. Career Advancement Opportunity: Career Advancement Opportunity such as regular training and development programmes that enhance the capability, productivity and confidence of employees ensure that the employee stays committed to his work.
  4. Job Enrichment and Job Security: Job Enrichment is the process of making a task interesting, interactive and engaging. It plays a vital role in taking away elements of repetitiveness and the consequent tiredness. Job security relates to a certain surety of job stability that an employee expects from an organisation. Job security acts against feelings of uncertainty and ensures loyalty.
  5. Employee Recognition & Participation: Great work always requires recognition. The recognition of a person’s effort is an important driving force to ensure better work. A simple gesture such as a congratulatory remark can go a long way in motivating an employee and organisations across the world does the same in numerous ways. Employee participation in the decision making process and their empowerment are also powerful incentives that makes the employees feel valued in the organisation.


Motivation is not a difficult task. It is not however a task to be taken lightly. Successful work is possible only when there is a will to do it and there is a desire to do it. Such desire and the will to perform the task in most cases is only possible through motivation in the form of incentives. Incentives have to be optimally balanced. It should encourage the employees but should never go overboard to cause counter-productive effects.

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About Sonia Kukreja

I am a mother of a lovely kid, and an avid fan technology, computing and management related topics. I hold a degree in MBA from well known management college in India. After completing my post graduation I thought to start a website where I can share management related concepts with rest of the people.