Financial and non-financial incentives

Incentives are the means used to motivate people. They are financial or non-financial.

Financial incentives (in money, or money's worth):

• pay and allowances (salary, dearness allowance);
• productivity-linked wages;
• bonus;
• profit sharing;
• co-partnership or stock options: shares offered to employees at a price lower than the market price, which gives them a feeling of ownership;
• retirement benefits: provident fund, pension, gratuity;
• perquisites (perks): a car, housing, medical aid, children's education.

Some of these are easy to mix up:

• An allowance is extra cash (a rent allowance, a travel allowance); a perquisite is the benefit itself, in kind: the house instead of the rent allowance, the company car instead of the travel allowance.
• A bonus is paid on top of salary on a special occasion: Diwali, the company's silver jubilee, or the end of a big project.
• A productivity-linked wage pays by output: at ₹10 a shirt, a tailor who stitches 10 shirts earns ₹100, so he tries to make more.
• Profit sharing gives employees a share of the profit, so they work to make the profit bigger.

Non-financial incentives (meeting social and psychological needs):

• status (rank in the organisation);
• a good organisational climate;
• career advancement opportunities;
• job enrichment: designing jobs with more variety, skill and freedom;
• employee recognition;
• job security (though too much of it can make people complacent);
• employee participation in decisions;
• employee empowerment: more independence and power.

Recognition costs little and works well: a word of praise, a certificate, the name of the 'employee of the month' on the notice board. In cricket's IPL, the top run-scorer wears the orange cap and the top wicket-taker the purple cap, and players try hard to win them.

Promotion brings more money, but its psychological value (status and recognition) usually matters more. Money matters, but not alone.