Financial Incentives

What is Financial Incentives ?


‘Financial incentives are the various economic benefits that are provided to the employee to encourage them to perform daily duties as well as be a trustworthy member of the organization.
A major factor for providing financial incentives and non-financial incentives is to encourage the employees to perform some actions better, which they wouldn’t be interested in performing in the absence of said benefits.

Types of incentives:

Let us understand the various types of incentive

Performance incentive

Performance incentives refer to the most common form of financial incentive programs. It refers to the various monetary benefits provided to the employees for performing their job well in addition to their salary. For example, the employer might provide a gift hamper based on the fact that he or she was ’employee of the month’.


Raises refer to the increase in salary which is determined by the performance of the employee mostly. Companies generally offer a fixed range of salary raise annually for their employees with the higher-performing employees receiving higher raises compared to other employees.


Bonuses refer to the extra monetary incentive provided to the employees as a means of rewarding them for being a part of the reason for the company’s growth. The amount of bonus depends on various factors which are predefined by the organization.


Commission refers to the percentage of profits given to an employee for making sales or achieving their targets. For example, sales representatives are more likely to receive 10% of every sale.


Profit-sharing options are the financial incentives for benefiting the company by being a part of improving the profits of the company. With it, the employees are likely to work harder since the company profits directly affect their remuneration.

Stock Options

Stock options refer to the option of providing the employees with shares of the organization. In most cases, these shares are sold to the employee at a much lower rate. It is given to managers as they would have a significant impact on the company’s performance.

Retirement Benefits

Retirement Benefits is the collective term used to refer to gratuity, PF, leave encashment, etc. Since they provide financial security to the employees after their retirement, the employee stays motivated to maximise these benefits.


Perquisites refer to the non-monetary benefits such as car allowance, medical insurance, accommodation, education of kids, home rent allowance, etc. which are provided over their salary and fixed allowances, which them stay loyal.

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