What are Employee Incentives?

An incentive is an object or item of value or desired action or event that spurs an employee to do more of whatever was encouraged by the employer through the chosen incentive.

The kinds of incentives that are available for employers to be used at work. Sure that others would categorize these incentives in a different manner, but these four categories work for me.

Compensation incentives may include items such as raises, profit sharing, signing bonuses, and stock options.

Recognition incentives would include actions such as thanking employees for the work, praising employees for the good work, presenting employees with a certificate of achievement for them to feel motivated, or announcing an accomplishment at a company meeting for a sense of achievement.

Rewards incentives include items such as gifts, monetary rewards, service award presents, and also items such as gift certificates. An additional example also is employee referral awards that some companies use to encourage employees to refer to job candidates.

What are the types of employee incentives?

1. Monetary or Financial Incentives

The reward or incentive that can be calculated in terms of money is known as a monetary incentive. These incentives are offered to such employees that have more physiological, social and security need active in them. The common monetary incentives are:

Pay and allowances:

Regular increments in the regular salary every year and grant of allowance act as good motivators. In some organizations, pay hikes and allowances are directly linked with the performance of the employee. To get increment and allowance employees perform to their best ability to get it.

Profits sharing:

The organization offers a share in the profits to the employees as a common incentive for encouraging the employees for working efficiently and boosting them. Under profits sharing schemes generally, the companies fix a percentage of profits, and if the profits exceed that percentage then the surplus profits are distributed among the employees for encouragement.

It encourages the employees to work efficiently to increase the profits of the company so that they can get share in the profits and earn extra.

Co-partnership/stock option:

Sharing the profit does not give ownership right to the employees its just a certain amount. Many companies offer a share in the management or participation along with a share in profit to its employees as an incentive to get efficient and keep them positively encouraged. The co-partnership is offered by the issue of shares on exceeding a certain fixed target.


A bonus is a one-time extra reward offered to the employee for sharing high performance work. Generally when the employees reach their target or exceed the target then they are paid extra amount called as bonus. Bonus is also given in the form of free trips to foreign countries, paid vacations or gold, etc as apart from monetary benefits these are also a booster. some companies have the scheme of offering bonus during the festival times to boost them.


The commission is the common incentive offered to employees working under sales department for the sales they perform. Generally the sales person get the basic salary and also with these efforts put in by them. More orders mean more commission.

Suggestion system:

Under the suggestion system the employees are given rewards if the organization gains with the suggestion offered by the employee. For example, if an employee suggests a cost-saving technique of then extra payment is given to the employee for giving that suggestion.

The amount of reward or payment is given to the employee under the suggestion system depends on the gain or benefit which the organization gets with that suggestion it is a very good incentive to keep the initiative level of employees high by doing this.

Productivity linked with wage incentives:

These are wage rate plans that offer higher wages for more productivity done by employees. Under the differential piece wage system, efficient workers are paid higher wages in comparison to the inefficient workers. To get higher wages workers to perform efficiently.

Retirement benefits:

Some organizations offer retirement benefits such as a pension, provident fund, gratuity, etc. to motivate people. These incentives are suitable for employees who have security and safety needs within.

Perks/Fringe Benefits:

If refers to special benefits such as medical facility, free education for children, housing facility and a lot more. These benefits are over and above salary. These extra benefits are related with the performance of the employees.


2. Non-Monetary/Non-Financial Incentives

Money is not the only motivator the employees who have more of esteem and self-actualization need active in them get satisfied with the non-monetary incentives only and are better motivated by non-monetary benefits. The incentives that cannot be calculated in terms of money are known as non-monetary incentives they are not monetary related. Generally people working at higher position Jobs or at Higher rank get satisfied with non-monetary incentives other than monetary benefits. The common means or ways of non-monetary incentives are as follows:


Status refers to rank, authority, responsibility, recognition and prestige related to job that is being performed by an individual. By offering higher status or rank in the organization managers can motivate employees having esteem and self-actualization need active in them and feel motivated by these.

Organizational climate:

It refers to relations between superior and subordinates. These are the characteristics that describe an organization. These characteristics have direct influence over the behavior of a member of the organization.

A positive approach adopted by a manager creates a better organizational climate whereas a negative approach may spoil the climate. Employees are always motivated in a healthy organizational climate other than an unhealthy organizational climate.

Career advancement:

Managers must provide promotional opportunities to employees as a motivating factor. Whenever there are promotional opportunities that employees look up to the employees improve their skill and efficiency with the hope that they will be promoted to a high level.

Promotion is a very big stimulator or motivator which induces people to perform to their best level to get promoted.

Job enrichment/Assignment of challenging job:

Employees get bored by performing their routine tasks and the routine job. They enjoy doing jobs which offer them variety and opportunity to show their skills set and feel encouraged. By offering challenging jobs, autonomy to perform a job, interesting jobs, employees get satisfied and they are motivated immensely. The interesting, enriched and challenging job itself is a very good motivator.

3. Employee’s recognition

Recognition means giving special regard or respect which satisfies the ego of the subordinates and boosts them to perform better. Ego-satisfaction is a very good motivator as a booster. Whenever the good efforts or achievement or the positive attitudes are show by the subordinates then it must be recognized by the superior in public or in presence of other employees for others to be known as well as them to perform better.

Whenever if there is any negative attitude or mistake is done by subordinate then it should be discussed in private by calling the employee in cabin this keep the flow in a smooth manner. Examples of employee’s recognition are congratulating employee for good performance, displaying the achievement of employee, giving certificate of achievement,gifts etc.

4. Job security

Job security means lifetime bonding between employees and the organization that stays. Job security means giving permanent or confirmation letter to the employees. Job security ensures safety and security need but it may have a negative impact to it as well.

Once the employees get a job secured they lose interest in the job and may take it for granted. Of example, government employees do not perform efficiently as they have no fare of losing the job and hence are very relaxed. Job security must be given with some terms and conditions to keep the balance.

5. Employee’s participation

It means involving employee in decision making especially when decisions are related to workers they feel a sense of belongingness. Employees follow the decision more sincerely when their decision are taken in consultation with them for example if target production is fixed by consulting employee then he will try to achieve the target more sincerely as he was a part of it.

6. Autonomy/Employee empowerment

It means giving more freedom to subordinates as required. This empowerment develops confidence in employees and is a motivating factor. They use positive skill to prove that they are performing to the best when freedom is given to them and not misusing them.

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