Incentive Types – Most Important Types of Incentive Plans

Incentives can be defined as monetary or non-monetary reward offered to the employees for contributing more efficiency. Incentive can be extra payment or something more than the regular salary or wage. Incentive acts as a very good stimulator or motivator because it encourages the employees to improve their efficiency level and reach the target. The two common types of incentives are:

1. Monetary or Financial Incentives

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

  1. Pay and allowances. Regular increments in 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.
  2. Profits sharing. The organization offer share in the profits to the employees as a common incentive for encouraging the employees for working efficiently. Under profits sharing schemes generally the companies fix a percentage of profits, and if the profits exceed that percentage then the surplus profits is distributed among the employees. It encourages the employees to work efficiently to increase the profits of the company so that they can get share in the profits.
  3. Co-partnership/stock option. Sharing the profit does not give ownership right to the employees. Many companies offer share in management or participation in management along with share in profit to its employees as an incentive to get efficient working form the employees. The co-partnership is offered by issue of shares on exceeding a fixed target.
  4. Bonus. Bonus is a onetime extra reward offered to the employee for sharing high performance. Generally when the employees reach their target or exceed the target then they are paid extra amount called bonus. Bonus is also given in the form of free trips to foreign countries, paid vacations or gold etc. some companies have the scheme of offering bonus during the festival times.
  5. Commission. Commission is the common incentive offered to employees working under sales department. Generally the sales personal get the basic salary and also with this efforts put in by them. More orders mean more commission.
  6. Suggestion system. Under suggestion system the employees are given reward 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 employee for giving that suggestion. The amount of reward or payment given to the employee under suggestion system depends on the gain or benefit which organization gets with that suggestion it is a very good incentive to keep the initiative level of employees high.
  7. Productivity linked with wage incentives. These are wage rate plans which offer higher wages for more productivity. Under differential piece wage system efficient workers are paid higher wages as compared to inefficient workers. To get higher wages workers perform efficiently.
  8. Retirement benefits. Some organizations offer retirement benefits such as pension, provident fund, gratuity etc. to motivate people. These incentives are suitable for employees who have security and safety need.
  9. Perks/ fringe Benefits/ perquisites. If refers to special benefits such as medical facility, free education for children, housing facility etc. 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. The incentives which cannot be calculated in terms of money are known as non-monetary incentives. Generally people working at high job position or at high rank get satisfied with non-monetary incentives. The common means or ways of non-monetary incentives are:

  1. Status. Status refers to rank, authority, responsibility, recognition and prestige related to job. By offering higher status or rank in the organization managers can motivate employees having esteem and self- actualization need active in them.
  2. Organizational climate. It refers to relations between superior/ subordinates. These are the characteristics which describe and organization. These characteristics have direct influence over the behavior of a member. A positive approach adapted by manager creates better organizational climate whereas negative approach may spoil the climate, Employees are always motivated in the healthy organizational climate.
  3. Career advancement. Managers must provide promotional opportunities to employees. Whenever there are promotional opportunities employees improve their skill and efficiency with the hope that they will be promoted to high level. Promotion is a very big stimulator or motivator which induces people to perform to their best level.
  4. Job enrichment/ assignment of challenging job. Employees get bored by performing routine job. They enjoy doing jobs which offer them variety and opportunity to show their skill. By offering challenging jobs, autonomy to perform job, interesting jobs, employees get satisfied and they are motivated. Interesting, enriched and challenging job itself is a very good motivator or stimulator.
  5. Employee’s recognition. Recognition means giving special regard or respect which satisfies the ego of the subordinates. Ego-satisfaction is a very good motivator. Whenever the good efforts 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. 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. Examples of employee’s recognition are congratulating employee for good performance, displaying the achievement of employee, giving certificate of achievement, distributing mementos, gifts etc.
  6. Job security. Job security means life time bonding between employees and organization. Job security means giving permanent or confirmation letter. Job security ensures safety and security need but it may have negative impact. Once the employees get job secured they lose interest in job. Of example government employees do not perform efficiently as they have no fare of losing job. Job security must be given with some terms and conditions.
  7. Employee’s participation. It means involving employee in decision making especially when decisions are related to workers. Employees follow the decision more sincerely when these 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.
  8. Autonomy/ employee empowerment. It means giving more freedom to subordinates. This empowerment develops confidence in employees. They use positive skill to prove that they are performing to the best when freedom is given to them.

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