What are Financial and Non-financial Incentives?

Financial incentives involve money payments by the employer – either directly or indirectly. Higher wages and salaries, bonus, profit-sharing, commission, increment etc., are direct financial incentives. Provision of high quality furniture, subsidized food, separate telephone, air-conditioner, water cooler etc.,are examples of indirect financial incentives.

Non-financial incentives do not involve money payments. These are also important in motivating employees. These are:

1.      Job security:  Nothing can motivate a worker, appointed temporarily, better than provision of job security. Even if a temporary worker puts in greater efforts, lack of job security will always pose a threat. If such a worker is given job security, he will be even grateful to the management.

2.      Challenging work:  Workers, who are dynamic in nature, do not show preference for routine jobs. They are always ready to accept challenging assignments. It is, therefore, the duty of the employer, to understand the capabilities of every individual in the organization and accordingly assign him work. If a conservative person is given a job that requires a dynamic approach, he may not have any motivation to take it up. On the other hand, if a dynamic person is given a routine job, he too would not feel induced.

3.      Recognition:  It is important that the employer recognizes hard work. Even a word of appreciation from him would motivate the employees to maintain the same level of performance or do even better. Recognition need not necessarily be in the form of tangible benefits to employees. It may be any gesture from the employer which should come at the right time.

4.      Better Designations:  The designation of an employee is yet another motivating factor. Employees do show preference for certain designations. A salesman, for example, would like to be designated as a sales executive.

5.      Opportunities for advancement:  There should never be a stagnation point for any employee during the prime time of his career. The employer must always provide opportunities for his employees to perform well and move up in the hierarchy.

6.      Participation in decision-making:  Another non-financial incentive that stimulates any employee is his involvement in certain crucial decisions. For example, if the management decides to buy a new machinery for the factory, the workers’ viewpoints may be secured before making the final decision. The management should avoid unilateral decisions on such matters.

7.      Competition:  The management can encourage healthy competition among the employees. This would, certainly, motivate them to prove their capabilities. The management can also rank the employees according to performance. Such of those employees who have performed very well may be given merit certificates.

8.      Job rotation:  By job rotation we mean that the employees will be exposed to different kinds of job. This certainly would break the monotony of employees. For example, in a bank an employee may work in the Savings Bank Section for sometime after which he may be posted to the cash section. Such a change not only motivates the employees to perform well but also prepares him to be versatile.