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Incentives Meaning and Benefits

Are you a motivated worker? Do you get up in the morning feeling inspired to go to work? Are you efficient in your schedule and always beat the deadline whenever necessary? Are you driven enough to get your targeted sales in a day?

These are some of the attributes of a productive employee that all companies want to hire. To be able to have this kind of employee, the company should put more effort into productivity enhancement programs inside the company structure.

There are certain joys that come with being rewarded for a job well done. Every employee needs to feel happy and contented with their job. They need to feel valued by the company they are working. Every company should put effort into creating a good incentive scheme; this is because success depends mainly on employee’s performance.

Productivity incentives program should be prioritized in a company. This means more business transactions, thus, resulting in the overall success of the company.

Incentives are not widely used in some companies because of the lack of information about its correct implementation. To have an appropriate implementation, it is better to be informed about the true meaning of labor incentive and what are the different types and scopes surrounding it.

What is an Incentive? – Incentives Definition

Labor incentives refer to those incentives that supplement a salary and are given to the employees of a company for their excellent performance. Most often than not, incentives are what attract the employees to keep working in a company and go an extra mile to achieve something they are set to do. Plus, it will make them feel the belongingness and that, somehow, their efforts are valued.

For a labor incentives to fulfill its purpose, a clear classification of employees’ performance must be set. This classification must be the standard on what quantity or quality of the incentive is to be given. Performance rating can be Poor, Satisfactory, or Superior. Clarifying expected performance will be more fruitful for the employee. Depending on the business activities of the company, incentives should vary according to the performance needed. Some jobs demand extra effort while others warrant extra time.

A correct implementation should be done for the incentive system to work for your company. The company should use goals that are reachable and objectively measured. Otherwise, employees will think that those incentives are not for them to take. The employee should have the control whether they will work for the incentive or not. Freedom to choose will not make them feel like they are forced to work for it. Rather, this will make them strive and do their best and not get disappointed after a failure.


The following are the primary reasons why labor incentives exist:

  • To maximize the employees’ productivity
  • Increase profit margin
  • Create good working environment
  • To motivate employee into giving their best shot at everything
  • To instill company loyalty to the employees

When To Start Labor Incentive Programs?

Synchronizing your incentive program to your periodic company audit is ideal. This is because a rating or feedback is necessary to provide the information relevant to incentives identification. Incentives should be set depending on the company’s operation.  Regardless of the company’s approach, programs should start according to the management’s schedule.

There are times when research is required before launching a labor incentive program. So, it is really up to the time and budget set by the company.

What Are the Types of Labor Incentives?

1.- Monetary incentives

Monetary incentives are commonly known as incentive pay and bonus. One of the most effective uplifting factors for the employees is a promise of additional money aside from their salary. These are money-based incentives given as a reward when an employee meets the standard expectations.

In this setup, employees are given a set of target standards or numbers to achieve. These are known as “quota” or goals. Once those are achieved, an equivalent amount will be earned by a hardworking employee. In setting up standards, one should take into account the employees capacities and abilities. You can never be too high in your standards. Just periodically review your program and see if there are changes or improvements needed.

A great example of this is the salesman’s quota of the day. When he hit his daily targeted sales, he receives an extra amount in his daily commission. The higher the amount derived from the monetary incentive program, the more the employee will be motivated to work harder for the next target. However, the greatest drawback for this kind of incentive is when a large amount of money are involved, employees may be tempted to cross righteous boundaries to earn big.

Paid training trips, company outing, and other activities that imply an economic cost to the company are a kind of monetary incentive.


  • This is the easiest route since it doesn’t involve constructing anything.
  • Most employees may shy away from public recognitions and may prefer money instead of a title.
  • The employees feel that they have a bit of control over their level of income.
  • Monetary incentives can also be used in the recruiting process like signing bonus.
  • Money rewards increase innovation and creativity because the employee will find ways to pursue goals in different ways possible.


  • Some employees forego rest time or break to hit the target. This will result in poor quality work because of exhaustion.
  • Regular and nonstop use of this incentive may lead employee to see this as an entitlement.
  • This can lead employees to take shortcuts.
  • The employees may focus on the promised money and disregard quality over time.
  • It can raise pay inequality among employees of the same ranks.

2.-Non-monetary incentives

These are casual incentives given for good performing employees. It is called non-monetary basically because there is no money involve here. This may range from a simple pat on the back, or a sincere thank you for your employee to paid vacations.

Some employees are reaching for a positive stroke to get motivated. Incentives like acknowledgment and praise are said to be a good motivator for success. But for bigger companies, these incentives may refer to those awards or commendations given during a company ceremony. Titles like “Employee of the year,” “Best salesman of the month” fall into this category. These titles will motivate employees to work hard to get noticed. Aside from the commendation, these titles are associated with certain benefits. Those benefits differ depending on the generosity of the company.

In this incentive program, credits must be given to the rightful deserving employee. There should be a balance between teamwork and individual standards. Otherwise, incentives like this can hurt your employees instead of motivating them.

Other forms of non-monetary incentives are recreation area or other necessary facilities in the workplace. Some companies provide gym to their employees. An outcome of healthy and physically engaged employee in the job is beneficial to the company. Employee absences and sickness will be rare.

There are also companies who let employed mothers take their child at work. They provide a safe learning and playing facility near their offices. This works for office-based jobs only. Moreover, fringe benefits like holidays, sick leave, maternity or paternity leave, fall under non-monetary incentives too.


  • Splendid non-monetary incentives attract future employees, so you will never be short of the workforce.
  • The employees feel at home and safe in their work environment; this will improve work quality.
  • This helps retain current employees and encourage loyalty from them.


  • Envy and jealousy among the employees may arise.
  • Titles may be a reason for social branding within different employee ranks.
  • Some employees may feel that a supervisor has favoritism.
  • Co-workers may hear an implied comparison from the rewarded one.
  • It takes time and effort to plan and research before implementation takes place.

What Are the Characteristic of a Good Incentive Program?


  • Some employees forego rest time or break to hit the target. This will result in poor quality work because of exhaustion.
  • Regular and nonstop use of this incentive may lead employee to see this as an entitlement.
  • This can lead employees to take shortcuts.
  • The employees may focus on the promised money and disregard quality over time.
  • It can raise pay inequality among employees of the same ranks.


Labor incentives have the great potential to increase employees’ productivity if properly set and maintained. Constant revision and program upgrade are necessary for labor incentives to work properly in your company. There should be a regular follow-through in its management.  Effective incentives scheme should be properly designed so that the more the employees can benefit from it, and the more the company can gain positively too.

If an incentive system goes wrong along the way, don’t be disheartened, incentives schemes don’t always work the way they are designed to be. What matter is that regular program evaluation is done so that you may know what areas are needed to be enhanced.

Incentives: Meaning, Definition, Ideas, and More!
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