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Incentives can lead to improved performance if employees are able to perform better if they want the incentives, and if there are few constraints”

Over the years, companies have used various incentive measures such as salaries, fringe benefits, and intangible rewards such as recognition or praise to increase overall employees’ performance and keep them motivated. Many research findings also suggest that it is more important to reduce dis-incentives than inventing new incentives since these incentives favor non-conducive behavior


There are two types of incentives; financial and non-financial incentives.  Salary, pension, insurance, bonuses, subsidized meals, clothes, and housing are financial incentives. Many research studies have found that financial incentives are associated with better performance although perverse impacts can also be observed (UNDP, 2006).

It has also been observed that cash awards have the higher impact on the performance of employees when their remuneration is low; however, results are different of these measures in public and private organizations (Mathis,  & Jackson, 2010).

Organizations offer non-financial incentives in many forms such as gifts, traveling, rewards, work flexibility, independence of working, recognition & praise, career advancement etc.  Since the perceived value of non-financial incentives is a function of psychological processes, it is difficult to measure the impact of these incentives on employees’ performance (Mathis,  & Jackson, 2010).

Esengberg & Cameron (1996) study shows that consistent better performance can be obtained from properly-designed incentive systems. There is also sufficient evidence that properly-designed prize and money incentive programs can dramatically increase performance even when salary and other incentive are not working. These incentives do not usually disturb personal and intrinsic interest in work. It is also claimed in these studies that tangible incentives also increase personal interest and value for work (Houran & Kefgen,  n.d).

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There is also sufficient research that shows that the following results can be expected when people are paid for exceeding work targets:

  • They start valuing work tasks more;
  • Their level of self-confidence and esteem increase for the organization;
  • Their level of persistence rises at work tasks;
  • They start striving for higher levels of accomplishment and have greater overall interest in work (Incentive Research Foundation, 2002).

According to Incentive research Foundation Report, (2002), it is evident that performance of employees’ increases by about 15 percent when an organization offers incentives to them for doing something new that they have not experienced before.  Moreover, about 27 performance increase was observed when incentives were offered to people for encouraging them to be persistent at more familiar tasks. Additionally, companies can have about 26 percent performance increase by offering incentives to encourage people to invest their best “mental effort” at the task (Incentive Research Foundation, 2002).

On the other hand, Lepper, Green, & Nisbett, (1973) claim that personal interests are damaged when companies provide tangible incentives. Basically, ‘money-grubbing” mentality is created when people are paid for performance and their intrinsic interest in work activities are reduced. Moreover, the quality of works suffers when tangible incentives are provided to people since they start to focus on tasks where they receive more incentives. Organizations can have similar effects of tangible incentives on both quantity goals and quality goals (Houran & Kefgen,  n.d).

There are some negative impacts of tangible incentives, for instance, cash-incentive may direct people to become poorer psychological well-being. However, this is in contrast to pursuing money for providing security and comfort for oneself and family. It is also obvious that employees work for earning fair wages and salaries, and employers want to get the things done by paying them satisfactory incentives. Thus it is logical that money works as a fundamental incentive for satisfactory job performance (Houran & Kefgen,  n.d).

Moreover, the recent study of McKinsey shows that traditional wisdom of management –it is money that counts-does not hold true in the present economic situation. The research also shows that 3 highest rated financial incentives are less effective than non-cash motivators. One of the biggest advantages of non-cash incentives is they help organizations in maximizing effectiveness in aligning with its goals with the priorities of its people.

In short, many research studies have concluded that in many sectors, job functions and business context, the effectiveness of satisfactory salaries, some non-financial incentives is greater for employees’ performance than extra cash in foster long-term employee engagement. Since financial rewards and incentives have short-term benefits for the organization and can lead to unintended consequences, it is the time for business leaders to rethink the combination of financial and non-financial incentives amid the economic crisis and imperatives for reducing costs and balancing short and long-term performance effectively. Through effective combination, they can have a greater impact on employees’ performance and lead them to have long-term success.

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