Explain different financial and non-financial incentives used to motivate employees of a company?

Financial Incentives

Financial incentives refer to direct monetary incentives offered to the employees to motivate or reward people for better performance. The following are some of the financial incentives used in the organisations. 

i. Salary and Allowances: In every organisation salary and allowances given to the employees forms the basic form of financial incentive. Regular raise in salaries and grant of allowances acts as a motivation for the employees 

ii. Performance Based Incentives: Often organisation offer monetary rewards for good performance. This induces the workers to improve their efficiency and performance.

iii. Bonus: Bonus refers to the extra reward over and above the basic salary. It can take the form as cash, gifts, paid vacations, etc. For example, some organisations grant bonus during festival times such as Diwali bonus.

iv. Stock Option: Under this incentive scheme, the employee is offered the shares of the company at a price lower than the market price. This instils a feeling of ownership and belongingness in the employee and urges him to contribute towards the goals of the organisation.

v. Sharing of Profit: Herein, the organisation shares a portion of the profit with its employees. This encourages the workers to contribute actively towards the growth of the organisation.

vi. Retirements Benefits: Many organisations offer certain retirement benefits to its employees such as pensions, gratuity, provident fund, etc. This provides a sense of security and stability to the employees.

vii. Fringe Benefits: Besides the basic salary an organisation may offer certain additional advantages also to its employees such as housing allowance, medical allowance, etc.

Non Financial Incentives 

Non-financial incentives refer to those incentives that focus on non-monetary needs of the employees such as the social and psychological needs. The following are some of the non- financial incentives used in the organisations.

i. Position: Rise in status in terms of power, authority, responsibility provides a psychological boost to the employees. For example, a promotion may satisfy the esteem and self actualisation needs of an individual. 

ii. Organisational Characteristics: Certain characteristics such as employee freedom, recognition of performance, incentives and rewards play an important role in influencing the behaviour of the employees. For example, if the employees get due recognition for their performance, it encourages them to work more efficiently. 

iii. Work Enrichment: Often, a challenging work endowed with greater responsibility and requiring higher knowledge and skill enhances the interest of the employee. It provides the employee prospects for personal growth. Thus, it proves to be a good source of motivation for him.

iv. Career Opportunities: If the organisation is endowed with appropriate growth and career opportunities for its employees, it strives then to perform better and thereby, climb the professional ladder. 

v. Job Security: An employee should have a certain extent of security regarding his association with the organisation. Constant fear of losing the job hampers their efficiency. However, a complete security can also result in loss of interest in work.

vi. Involvement: If an organisation allows the participation of the employees in the policy and decision making matters, then it instils a feeling of belongingness in them and motivates them to work towards the organisational goals.