Financial and Non-Financial Incentives

Financial Incentives

Companies provide Financial Incentives or monetary benefits to their employees both as a motivation and as a reward. It is an essential role in satisfying social/security and physiological needs. If employees perform well, then the organisation gives them a reward as an appreciation for their efforts. And when the employee needs an added reason to give their best efforts, the company promises extra benefits in case they complete a particular task. Some of the common Financial Incentives are in the form of bonuses, increments, profit sharing and periodic hikes in the wages or salaries of employees.

Types of Financial Incentives

The different types of Financial Incentives are as follows:

  • Salary – It is the basic Financial Incentive for any employee to work diligently for the organisation. It includes components like basic pay, house rent allowance, dearness allowance and other such benefits.
  • Bonus – It is a consolidated amount that an employee gets from the organisation for performing well. It can act as a powerful motivator for the employee. The bonus can also be for specific occasions like festivals or other important events for the company. The bonus can be in the form of monetary benefits, paid vacations, gifts, etc.
  • Performance-based incentives – Employees may also get increments based on their performance apart from the yearly hike on basic pay. It can motivate the employee to keep improving their efficiency.
  • Stock options – Firms can offer ordinary shares to employees at rates below the market price. These shares can act as a motivator for employees by making them part owners of the company.

Non-Financial Incentives

Employees also have non-monetary needs be it psychological, emotional or social. They need to fulfil these needs within the job or else they may leave it for better opportunities elsewhere. It is important that any company focuses on them as well while they provide financial perks to their workers. The Non-Financial Incentives take care of these needs to motivate employees to perform better in their roles.

Types of Non-Financial Incentives

The different types of Non-Financial Incentives are as follows:

  • Appreciation – Giving due recognition for an employee’s work encourages them to be more diligent and dedicated towards their job. It gives a fillip to their self-esteem and motivates them. Companies have employee recognition programs where they declare the best performers from time to time.
  • Promotion – An employee’s current designation reflects their position in the organisational chart. It determines their level of responsibility and authority, salary, bonus and other benefits. To keep an employee motivated, companies can promote them to improve their standing in the organisation and encourage them to continue their good work.
  • Career opportunities – Companies can provide career development programs for their employees to give them a chance to learn new skills. These skills can help them apply for senior positions within the organisation.
  • Job enrichment – Organisations can design jobs to involve higher knowledge and skill levels, greater responsibility and autonomy to motivate employees. It will give them a chance to express themselves while also providing more career growth and development opportunities. They can also set up committees comprising employees from different departments and seek their input in enriching job roles.
  • Job security – Organisations must provide jobs that are relatively secular compared to their competitors. It gives more confidence to the staff in a company to express their creativity. Job security is one of the most essential Non-Financial Incentives that can ensure better performance from personnel within the company.


Organisations must use both Financial and Non-Financial Incentives to motivate their employees to ensure better performance from them in the long run. It empowers them to serve their company in the best possible manner and improve their career prospects for the future.

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