As we all know, people changing and adapting to modern trends is a central puzzle for many organizations today. It is very common nowadays to pay competitive salaries to workers, however, such engagement is not always adequate. Employee engagement involves incentives. Most companies today understand that an incentive structure complements their overall strategy and can enhance employee engagement, morale, productivity and retention. Nevertheless, drawing the line on how much of monetary incentives should be given to employees is not easy.
This blog will delve into the advantages and disadvantages of both types of incentives and how they complement each other, and assist how to organize an effective incentive plan for your company. In the process, we will note how the proper assortment of elements in the plan including the frequently mentioned incentive bonus helps in bringing into existence active and constructive employees.
What Are Monetary and Non-Monetary Incentives?
Monetary incentives denote the financial compensation offered to an employee for completing a certain quota of work or achieving certain set targets. Such forms of compensation include but are not limited to, bonuses, commissions, stock options, and profit sharing among other means of direct reward.
However, non-monetary incentives are management practices that do not have direct financial compensation but instead focus on enhancing employees’ quality of life, job satisfaction, efficiency or well-being. Such incentives may include but are not limited to, awards, promotions, modifications of schedule, vacations, holidays, or health facilities.
The Power of Monetary Incentives
Monetary motivation is one of the easiest and simplest ways to motivate more so in a working environment. For instance, when employees are given realistic financial incentives, they tend to appreciate the fact that their hard work and input has been fairly rewarded and this can, in some cases, lead to increases in productivity for a short period. Following are some of the common examples of monetary compensation:
1. Incentive Bonus
Out of all the forms of monetary rewards, the incentive bonus is arguably the most common. A bonus is usually linked with an individual or a company’s performance and can be paid out annually, quarterly or once a certain target is achieved. An Incentive bonus is given for hard work that is done when all needs and expectations have been met and this motivates people to work even harder.
2. Commission-Based Pay
Paid commissions are mostly associated with sales jobs; this type of payment motivates employees by directly linking their pay to the amount of business they generate for the company. It is especially effective for those individuals who want to see results instantly and wish to be rewarded in cash for their outpouring efforts.
3. Profit Sharing and Stock Options
Here, employers can provide employees with part of the profits that the company earns or allow them to purchase stocks in the company as part of their payment. There is a psychological aspect that helps too, as these payments help in making employees work harder, while at the same time promoting employee retention, as the workers make relations with the firm on a financial basis.
The Impact of Monetary Incentives on Performance
Monetary incentives help enhance performance in goal-driven roles or jobs that can be measured such as sales, or project-driven activities. Research published in the Harvard Business Review found that in 72% of the organizations, giving financial rewards improved the performance of the employees. In addition, a study conducted by Glassdoor reported that 57% of employees rated good pay and benefits as one of the most important factors that contributed to their job satisfaction.
Nonetheless, it is true that when financial rewards are given, people tend to develop a short-term approach. After some time, the employees may start regarding bonuses or other types of raises to their wages as included in the package offered to them and lessen such rewards in effect. Also, such a focus on money ignores the more important reasons people choose to work – the reasons for their engagement and satisfaction which are more enduring in nature.
The Value of Non-Monetary Incentives
The incentives that do not cost money are usually intended to focus on employees’ emotional aspects and their intrinsic motivations – what makes them feel valued, supported and fulfilled in their work. Such motivators have the ability to promote a sense of belonging and that of being appreciated which are important aspects that aid the retention of individuals for a long period. Some common examples of effective non-monetary elements are:
1. Recognition and Praise
There is hardly any person who works hard and does not wish to be appreciated. Simple gestures such as mentioning an employee in the office for her hard work, praising her in a group meeting or sending a card saying ‘thank you’ can all help to raise spirits and increase motivation remarkably. General recognition is relatively inexpensive but makes high returns on employee satisfaction.
2. Career Development Opportunities
In-house training, workshops, coaching and even vertical and lateral career changes help to motivate this category of employees who would want to become better at what they do. Career development benefits help in engaging employees for the long run by demonstrating that their advancement both personally and professionally is valued.
3. Flexible Work Arrangements
Very Few employees today want only the traditional form of work without any form of flexibility. A survey conducted on LinkedIn shows that 80% of working professionals would prefer working for a company that allows them to work on a flexible basis than for one that doesn’t allow any flexibility. Flexibility facilitates employees’ ability to balance their professional and personal lives more effectively resulting in increased job satisfaction and lower levels of burnout, if any.
4. Health and Wellness Programs
The productivity and the spirit of the employees may be improved with such measures. The provision of such means as sports club memberships, health development events, spare time and psychological support as counselling services fosters a culture that promotes the overall well-being of employees.
The Long-Term Benefits of Non-Monetary Incentives
Though monetary rewards may be effective in boosting productivity in the short term, non-monetary incentives are more effective in engagement over longer periods. Research indicates that employees who are made to feel important find it easier to stay with organizations for longer periods. Indeed, according to Gallup’s State of the Global Workplace report, companies with engaged, as opposed to disengaged workers, achieved an astonishing 147% more earnings per share compared to the competition.
When individuals are encouraged in their personal development and well-being, they are likely to remain loyal to the organization, hence reducing turnover rates, and improving the cohesion of team members.
Striking the Right Balance
The challenge of implementing an effective incentive scheme is knowing how to strike the proper ratio of cash and non-cash performance incentives. The use of monetary rewards as the only means of motivation may improve performance but for a short period and will in the long run cause burnout, entitlement and loss of motivation. In the same way, employing only extrinsic non-cash channels all the time may fail to satisfy some employees who wish to feel instant physical rewarding feedback.
When designing a good motivation plan, the following tactics can be used:
1. Tailor Incentives to Employee Preferences
Many factors drive employees and not all of them may be the same. For example, some may prefer to receive a cash bonus while others might want extra vacation days or additional training. Conduct employee surveys or even hold periodic talks to find out what drives your employees and adjust the incentive structure to fit that.
2. Align Incentives with Company Goals
All forms of incentives whether in cash or kind should be consistent with the general business objectives of the organization. For instance, this may involve directing bonuses towards certain corporate benchmarks in performance or instituting programs that train people for skills necessary for the business in the future.
3. Ensure Fairness and Transparency
The system of incentives should not in any way give a disadvantage to some employees in favour of others. Make sure that the conditions that will make one eligible for bonus payment, promotion, rewards, and so forth are well spelt out. Correctly articulated but vague systems are bound to foster ill will and consequently poor engagement.
4. Mix Short-Term and Long-Term Rewards
Employ temporary performance rewards such as incentive bonuses which are short-lived with potential career growth and flexible work options which are long-term. This ensures that the employees achieve instant gratification but also encourages them that there is something in store for them in the future.
Conclusion
Incentives serve as effective means of enhancing performance and motivating employees. However, all the same monotonic appealing to just one or two means of incentives primarily financial ones is not a solution even in the short-run. Such combination gives an opportunity to achieve the goals of the organization successfully without straining its human resources. Although an incentive bonus may achieve short term objectives, sustained interest and satisfaction are produced by non-monetary motivational factors, which include recognition, career development and flexible working hours.
It is important to find the right combination, as it is what helps in creating a motivated, productive, and devoted personnel. Providing a range of incentives that incorporates both intrinsic and extrinsic motivation efficacy enables the organization to has a high performance work place, while taking care of the employees health and their advancement as well.
