22 Types of Incentives – Financial And Non-Financial

In the competitive business era, companies do everything possible to stay ahead in business. Incentives are also an essential part of their efforts. The success of a company depends on the performance of its employees. Because of this reason, companies pay so much attention to the recruitment of the right talent and use methods to get maximum output from their employees. Incentives are also part of the efforts that companies make to draw maximum production from their employees.

Incentives can be defined as a thing that organizations use to encourage or motivate their employees to increase their productivity. Companies use different types of incentives to motivate their employees. Broadly, the incentives can be divided into two categories, such as financial incentives and non-financial incentives. In this article, you will learn about the different types of financial and non-financial incentives.

Types of Incentives

A. Financial incentives

Financial incentives are the incentives that are given to employees in monetary form. Sometimes, they are awarded a bonus because of the profit they earned for the organisation. Sometimes, they are given a commission on every sale that they make.

However, bonus and commission are not only the two ways of providing financial incentives to employees. There are several other types of incentives in monetary form. Let us learn about all of them.

1. Wage Incentives

Wages can be defined as money paid to employees in return to their services. This type of incentive system works by increasing the basic wage or salary of an employee when his efforts help the organisation to generate more profits. An efficient employee will be paid more as compared to an inefficient employee.

2. Profit-sharing

The profit-sharing is an incentive method in which employees, in addition to basic salary, are given a certain percentage of the total profit made by the organisation. Profit-sharing is a smart incentive method used by employers to increase their profits. If employees are aware of the fact that they are going to get a part of the total profit generated by the organization, then they will put more effort into maximizing the profit.

More will be the total profit generated by the organisation; more will be their share. This method was first introduced by a French painter Leclaire. He believed that if employees are given a share in profit, then there will be less wastage of raw material and employee will take more care while using the equipment and tools.

In present times, the Profit-sharing incentive method is used by many organisations. They distribute the profit exceed with their employees. To get extra money, employees work hard to exceed profits.

3. Co-partnership

Co-partnership is a type of incentive in which employee is given a share in management and share in the profit. Co-partnership incentives work best because it helps in improving the status of employees. They become partners with their employers rather than just staying employees.

However, their small share in the stocks does not make them owners of the company but gives them a right to take part in management meetings. They feel more associated with the organisation and become more responsible for the organisation. This helps companies to generate more profits.

4. Bonus

A bonus is a one-time monetary or non-monetary incentive given to employees when they achieve their fixed target. Bonus is given to employees after a fixed period, such as monthly, quarterly, half-yearly, or annually. Employees are given a fixed target and are also told about the bonus value to encourage them to achieve their goals. This type of incentive is used in almost all types of industries.

It improves the relationship of employees with employers. A bonus can be given to employees in addition to their basic wages. It can be in the form of money or the type of specialized service or vacation.

5. Retirement Benefits

Retirement benefits are the benefits given to employees after their retirement. The examples of retirement benefits are Gratuity, provident funds, etc. Companies make more contributions to the retirement benefit of an employee who brings more business for the organization or helps an organization to generate more profits with his efforts.

6. Suggestion System

This type of incentive works on the principle that the opinion and suggestions of each employee are valuable. These organizations ask for advice from their employees to improve the business, and when an idea of an employee helps the organization improve its business, then the employee is given a monetary reward.

The suggestion system is a very effective way to get young blood run through the organization. Sometimes, management doesn’t have ideas that can help the organization to grow or work more efficiently. But asking suggestions from employees will not only help in getting new ideas but also encourage employees to come up with creative solutions to the problems faced by the organization.

7. Dearness Allowance

The primary type of financial incentive is the dearness allowance. It is given to employees along with their basic salary. It is given to employees by employers to provide them relief against inflation. Dearness allowance is an essential part of the wages or salaries of employees.

The government gives dearness allowance to all its employees. However, there are a few private sector organizations also which are providing dearness allowance to their employees against the ever-increasing price of consumers’ goods.

Earlier, dearness allowance was not an integral part of the wages or salaries, and it was kept different from the basic salary. It was given to employees whenever there is an increase in the price of consumers’ goods, and it was expected that inflation is temporary, and the cost of goods will come back to normal as it was. But in present times, prices of products only increase and no reduction in costs is observed.

As a result of which the dearness allowance has become an essential part of the wages or salaries of employees. In different industries, different amount of dearness allowance is paid to employees. Dearness allowance help people to maintain a reasonable standard of living.

8. Commission

This type of incentive is popularly given to sales employees. The commission incentive works effortlessly. In addition to basic salary, the sales employees are given a commission on every unit sold by them.

Because of that, employees put extra effort into selling more units. The commission incentive system helps companies to generate profits. However, their profit gets divided because of the commission shared with the employees.

9. Fringe Benefits

There are some organizations like Google which provide fringe benefits to all its employees. Fringe benefits can be defined as the benefits provided to employees in the form of free children’s education, free housing facility, or free medical facility, etc.

These are the most significant expenses of an employee, and any employee would be happy to work hard if he is given these benefits.

B. Non-financial incentives

Non-financial incentives are those incentives that are not provided to employees in the form of money. These incentives help in boosting the self-respect and ego of employees. These incentives work on employees who like to have power and authority.

The followings are the different types of non-financial incentives

10. Discussions

It is essential to discuss everything with your employees. For example, review policies with your employees and ask for their opinions rather than directly implementing them. Discussions are healthy for the relationship between management and employees. Your employees will feel a sense of co-partnership, and as a result of that, they will become more dedicated to their work.

11. Competition

Competition is another non-financial incentive method to generate profits. Competition is not exactly an incentive. But it can be utilised to make employees work hard to create more benefits.

Employees are prepared to compete for a reward, and the employee who wins is awarded the reward. For example, a manager can announce a reward of $100 for whoever will sell 100 units of product first. In this way, you make your employees to put their best to win that reward.

12. Opportunity to Progress

The opportunity to progress or promotion is similar. An employee who performs best will be given promotion. This type of incentive works in many organizations without making any official announcement.

Every employee works to progress, and no employee would want to remain in the same position for their entire career. Therefore, if they know that they have an opportunity to progress, then they will work hard to improve in their career.

13. Delegation of authority

Delegation of authority means when management gives their responsibilities and authorities to their subordinates. It creates a sense of confidence in employees, and employees feel more motivated when management shows their trust in them.

14. Participation in management

Some employees get motivated when they are given authority or power. Therefore, they feel motivated when they are asked to participate in management’s decision-making meetings and asked for their opinions.

By making deserving employees take part in management has two benefits, such as, first, you get to learn the point of view of employees, and second, your employees feel associated with the organization, and they work hard to achieve the organizational goals.

15. Paid vacations

Emergencies happen in everyone’s life, and sometimes employees need vacations to get rid of stress. Therefore, employees would like to work hard when they know that they can take the vacations they deserve without losing their salary.

16. Knowledge of results

Employees feel dejected when they are not shared with the outcomes of projects that they have worked hard for. Therefore, if you want your employees to think good for your organization and work hard to complete tasks at their hands efficiently, then share the outcomes no matter good or bad with them.

In this way, employees can evaluate their performance and can take corrective actions if required to improve their performance.

17. Proper leadership

A good leader will not only associate with employees during working hours but will also share the happiness and grief of his subordinates. It requires skillful leadership at the end of management to make its employees bind with the organization.

If management takes care of their employees as their family members, then workers will also work for the company as they would work for their own company.

18. Appreciation

Praise is a type of incentive which costs your nothing but works wonder in case of some employees. Some employees work just get appreciated by the management. Therefore, you can make the use of this incentive to boost your sales and to boost the performance of your employees.

19. Lack of fear

Lack of fear means your employees don’t feel scared of you, or they don’t work because of your fear. It is essential to make your employees feel comfortable in your presence. When your employees fear you, then there are high chances that they also hate you.

When your employees hate you, they don’t put their 100% to do their work. They will stop working as soon as you turn your back on them. Therefore, make sure that your employees respect you not fear you.

20. Job Security

Job security comes when an employee feels secure by working with his company. Every employee wants his job to be secure and safe. Job security makes employees do their job worry-free. Only a worry-free mind can think about creative ideas and perform his duty efficiently.

21. Recognition

Recognition means giving the credit of the job to the deserving person. Recognition will not only encourage them to repeat their behavior but will also help other employees to be in the same place.

22.Fair treatment

Employees work hard when they are treated fairly. This type of incentive works for employees who believe in performing their duties efficiently and in return expecting fair treatment form the organization, appropriate treatment in the form of salary hike, job promotion, and availability to opportunity.

Employees lose their trust in the organization if they are mistreated. Therefore, if you want to keep your hard-working and honest employees, then following fair treatment is a must for you.

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