Incentives – Types of Incentives

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Incentives are things that motivate people or encourage them to do a particular task. For example: when parents want their children to study they give them the incentive as a toy and then in greed for a toy they get ready to study. In this similar way the incentives work.

They are mainly of two types:


One- financial incentives those are related to money.

Second – non financial incentives those do not involve money but have other psychological and emotional factors.

Types of incentives

Financial incentives

Money has become an important source to survive in an economy. We need money to fulfil the basic needs such as food, water, clothes and shelter. That is why, money drives a person to perform various tasks. They are also called the monetary benefits. They are as under:

Basic pay and allowances

Payment such as salary is most basic need of an employee because through that money he or she will get the basic amenities for his or her survival. Also, they expect a regular increment and hike in salary so that they can meet the needs as the prices of the commodities also rise. Along with this allowances are also required such as dearness allowance, travel allowance etc to meet the extra need other than some basic ones.

Productivity linked wage incentives

There are various types of incentives which a company can provide to its employees and workers. Productivity linked incentives are an interesting type of incentive because a person will get the incentive when he or she performs in an efficient manner and achieve the targets. When they are sure of getting rewards then they will put their maximum efforts to get the incentives and thus the productivity of the firm also increases.


Bonus will be given over and above the salary of an employee and these are given for special occasions such as festivals or events in an organization or when the company has performed extremely well in certain quarter etc.

Stock option / co-partnership

In this incentive, employees get an offer of shares at a price which is set lower than the market price. When the employees are offered company’s shares then they get a feeling of ownership and they will then put efforts to improve the position of the company.

Profit sharing

Employees may also be offered the part in profits of the company. When this is done, the employees put their maximum efforts by improving the productivity so that the profits are increased.

Retirement benefits

When employees know that they will get benefits after retirement such as pensions, provident fund, gratuity, leave encashment etc, they get a feel of financial security after their retirement and because of this benefit they work to their best while they are still in service.

Non financial incentives

The psychological, emotional and social incentives are all part of non financial incentives. These are as under:


Every employee craves for a good status in an organization where they get rewards, recognition, authority, responsibility and prestige. They feel good when people recognise them and they feel proud when they are at a good position in an organization. This comes under the esteem needs of an individual.

Organizational climate

Organizational climate are the environmental factors of an organization. When this environment is positive and supportive then the employees are motivated to work harder and they gain a respect and loyalty for their organization.
Incentives - Organizational climate

Career advancement opportunities

These are the needs which come in self actualisation at the top of the pyramid of Maslow’s need hierarchy theory. Every individual wants to improve his position and reach to the top and when an organization offers him such opportunities then he feels motivated to work for them. A good and fair promotion policy, proper training and development techniques are some of the examples which encourage an employee.

Job enrichment

We human beings always want things and work around us interesting and ever growing. When things become boring and stagnant we try to remove them from our environment. Similar is the case with the job, when the work and responsibilities of an individual are challenging and interesting which require higher level of knowledge and skills then an employee feels a sense of meaningful work for which they get motivated.

Employee recognition programmes

These are the needs of an individual which are part of social / belonging needs of Maslow’s need hierarchy theory. When an individual puts efforts in completing a task and they get due recognition and praise for the same then they get motivated and feel happy. Acknowledgement and appreciation are very important for everyone. This can be done in various ways such as congratulating them for their good work, displaying achievements of an employee on the notice board so that other people can also see, awards, certificates, mementos and other rewards are also a good way to do so.

Job security

Job security is part of safety and security needs of an employee in Maslow’s need hierarchy theory. Every employee first wants the basic needs to be fulfilled i.e. getting a job and basic salary. When this is achieved then he wants a job security so that he has no worries about losing the job and can give more attention to his work.

Employee participation

Employees of an organization are an important part of the company and they also have great ideas for different tasks. These ideas can be taken into account and employees should be given some power to take the decision so that they feel themselves as an important part of an organization without getting a left out feeling. This contributes positively to their motivation and in company’s performance.

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