Financial Incentives Definition
Financial incentives refer to the benefits provided to employees to encourage them to fulfill their daily responsibilities and become reliable members of the organization.
The main purpose of offering both Financial Incentives is to motivate employees to perform certain actions more effectively even if they may not be inclined to do so without these benefits.
Here, we will discover:
Types of Financial Incentives
Financial Incentives encompass forms of compensation that are tied to rewards or require monetary payment. These incentives can come in forms and sizes. The common Financial Incentives include;
Salary & Allowances
The primary motivation for an employee to work efficiently for a company is their salary.
Basic pay, dearness allowance, house rent allowance and similar benefits form a part of the compensation package.
Employees receive raises in their pay as well as periodic increases in their allowances under the salary structure. These raises may sometimes depend on the employee’s performance throughout the year.
Performance Based Pay
This is a form of monetary incentive, and many companies are familiar with it. It is also sometimes referred to as the “Motivational factor for an Employee.”
It refers to a payment system where employees are rewarded based on their ability to achieve performance goals. A simple mechanism taps into an instinct that is, when someone receives compensation for completing a task, they are more motivated to accomplish more. This approach is also highly cost effective.
Sharing of Benefits
Benefit sharing refers to a type of incentive where employees receive a percentage of the company’s tax earnings. In addition, to their salary employees typically receive a portion of the company’s profits as well.
This means that an organization or workplace will provide benefit sharing payments based on factors such as the company’s profitability or exceptional customer service.
Implementing benefit-sharing schemes also helps increase employee loyalty as it makes them feel like valued members of the organization.
Non-Financial Incentives
Sometimes Financial Incentives alone may not be sufficient to motivate employees. Managers can combine incentives with motivators to enhance employee productivity.
In addition to fulfilling their future security, employees need to have emotional and psychological requirements that should be met.
Addressing these economic and mental needs is crucial for their motivation.
Non-financial incentives primarily focus on meeting needs that cannot be quantified in terms.
Examples include attention, access to company vehicles for business purposes, opportunities for career growth and advancement, recognition and appreciation for achievements, etc.
Additionally, it is possible that a non-financial incentive may also include a reward.
For instance, when employees receive a promotion in their job, this increases their salary or bonus. It also fulfills their needs as they gain authority, and their position also rises within the organization.
Types of Non-Financial Incentives
In addition to non-monetary rewards, organizations can use strategies to encourage behavior change and motivate employees to work more efficiently. Let’s discuss some forms of Financial Incentives below:
1. Recognition
Recognition involves expressing appreciation for a level of performance, achievement or contribution toward a goal. It can be done privately or publicly in a formal manner.
Showing employee appreciation is a way to make them feel valued, which ultimately leads to employee engagement and retention.
When implemented effectively recognition becomes a cost approach that boosts performance and increases employee’s investment in the company’s work.
2. Opportunities for Career Advancement
Opportunities for career growth can negatively impact motivation and achievement levels.
However, if employees are provided with chances to advance their careers by acquiring skills, knowledge and qualifications that enhance their performance and progress, they will feel valued and supported.
This will not only increase their productivity but also serve as a constant reminder that their efforts will help them achieve their goals while increasing their chances of advancement.
3. Work Culture
Work culture is crucial for individuals to enhance their productivity.
When employees feel valued and provided with the resources and incentives it boosts their motivation to perform well.
This in turn leads to increased job satisfaction and improved performance. Efficiency tends to decrease in workspaces when employees lack resources, software, ventilation, comfortable furniture or lighting.
These factors can make employees feel self-conscious and hinder their productivity.
Final Thoughts
It is important to recognize that both financial and non-financial Incentives play a key role in meeting the financial and psychological needs of employees.
Offering incentives not only benefits employees but employers. Incentives boost employee productivity. Enhance their loyalty towards the organization and its goals.
Frequently asked Questions
What is the advantage of financial incentives?
Answer: Companies provide incentives or financial benefits to their employees as both motivation and reward. They play a role in fulfilling psychological security and needs. If employees perform well, the organization will appreciate their efforts by offering them compensation.
How are financial incentives classified?
Answer: There are two types of incentives; Financial and Non-Financial. Financial Incentives involve payments or rewards given in exchange for achieving goals or targets. Non-Financial Incentives include rewards such as recognition, awards or honors.
How are financial incentives provided?
Answer: The incentives provided to employees. Financial Incentives include rewards like cash bonuses, commissions, awards and increased salaries. Non-financial incentives consist of responsibilities, recognition, extra time off and opportunities for vacations, etc.