The Role of Monetary and Non Monetary Incentives in Enhancing Employee Performance

The Role of Incentives in Enhancing Performance and How They Work In Practice

Organizations exist to provide goods and services to their consumers and clients and in turn, pay their employees’ salaries and bonuses to get the necessary work done to produce such goods and services.

Such salaries and bonuses are part of the monetary incentives which motivate the employees in addition to some non monetary incentives such as free food, commute taken care of, and paid vacations with family as well as healthcare options etc.

Indeed, in the United States, and in some Western countries where healthcare is not provided by the government, many workers and employees in businesses often join to the inducement of employer provided health insurance packages.

In addition, the more senior you are in the organizational hierarchy, the better are your chances to avail of incentives such as ESOPs or Employee Stock Option Plans, paid vacations, chauffeur driven cars, as well as plush accommodation that is paid for by their employers.

Apart from this, in many corporates, midlevel and junior level employees to receive some of these benefits based on their performance.

In other words, these incentives are often used to enhance employee performance in organizations.

Is Maslow Correct or Only Pay and Perks Matter to Professionals at Each Stage

So, does this mean that only incentives that are tangible as far as the benefits provided motivate employees?

Moreover, do the absence of such incentives deter potential and present employees from either joining the firms or quitting them looking for Greener Pastures?

The answers to these questions depend on what motivates employees and what should organizations do to inspire them to give their best.

In short, if pay and perks are the only incentives that motivate employees, then the best and the brightest would join all the Big Guns among the corporates.

A more nuanced understanding of what motivates employees and what enhances their performance is needed to understand the role of monetary and non monetary incentives.

For instance, why do the Silicon Valley start-ups as well as fledgling ones worldwide manage to attract some very good performers?

This is because after a certain level of experience and at a stage of career, management theories such as the Maslow’s Theory of Motivation state that there are higher needs that matter and hence, many employees are drawn to challenging work and the need to create something.

Moreover, such employees are intrinsically motivated in contrast to the employees who are extrinsically motivated.

What is the Fitment Process and how does it Work in Real World Firms?

What these insights from theories teaches us is that while pay and perks are important, there are higher needs and hence, any organisation wishing to attract the best and the brightest has to design a work package that includes all the elements.

So, how do the HR (Human Resources) determine what suits potential employees and target the packages accordingly?

More often than not, the hiring process these days in top notch firms is an elaborate affair that includes elements of determining what is known as the Fit between potential employees and the employers as far as JD or Job Description, Pay, Perks, and the Nature of the Work itself are concerned.

No wonder the Fitment process which is the term used to describe this process takes place over several rounds both with the potential hire as well as with internal stakeholders.

In our working experience, we have come across instances where the Hiring Process extends over weeks and sometimes more as the organisations evaluate the responses of the potential hire to the interviews, the psychometric profiling test results, as well as extensive background checks in addition to examining academic records and the past working experience and referrals from them.

Why Incentives Must Not Catalyze Reckless Risk Taking and Spur Unethical Behaviour

While all this looks good as far as the Fitment is concerned, in recent years, there has been a tendency to overemphasize incentives such as ESOPs and the others mentioned earlier.

For instance, there is the phenomenon of employees in start-ups quitting as soon as the IPO or the Initial Public Offering, a term used when such firms go public, is concluded.

This is because they can engage in what is known as Vestment wherein their Stock Options are now eligible to be liquidated.

Moreover, in Wall Street firms, the perverse role of bonuses and other incentives tied to performance has been highlighted in recent years as the reason for why such firms are always taking risks and gambling with the monies of their clients in order to make more and more money from performance linked bonuses.

Of course, while all this is justified as natural human tendencies, the HR has to be cognisant of how badly designed emolument packages can result in both putting off potential and present employees as well as incentivizing them for reckless behaviour.

It is our argument that the HR and other stakeholders take all elements of what incentives motivate employee performance into consideration.

Fresh Grads Must Know What They Want

Last, if you are a reader who is about to graduate, it is our advice that you do not be carried away by the breathless media coverage of the huge pay packages offered to your seniors and peers and instead, focus on what you really want at the beginning of your careers.

In short, be smart but also be focused on your inner motivations so that there is no disappointment down the line.

Indeed, the corporate world is a place where heroes become zeroes in no time just as the opposite is true and hence, better be safe than sorry.


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Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


Human Resource Management