Incentives | Meaning and Definition

What is an incentive? 

The term incentive refers to an object or maybe a desired item of value or an event that influences an employee to do the desired outcome as forecasted by the employer.

What are the common methods for providing employee incentives?

The below categories are some of the most common forms of incentives.

  • Employee compensation incentives – These are some of the common incentives tied up with the compensation, such as salary raise, bonus, employee stock option, profit sharing bonus, etc.
  • Recognition incentives – These are generally tied with the employee accomplishment within the company. Some of the recognition incentives include thanking or praising employees for doing a good job, publishing an employee accomplishment in a company meeting, etc. A very common form of recognition incentive is praise from a manager.
  • Reward Incentives – These generally include rewarding employees with gifts, any service-related rewards (certificates), any monetary benefits, etc.
  • Appreciation incentives – These are appreciation for achieving the desired goal. These might be tied up with a group or team of people. This can be paid group lunch or dinner, sponsored sports events, family activities or events within a company, etc.

What are the common reasons behind employee incentivization?

  • To retain top talent.
  • To improve productivity.
  • To empower and reward high achievers.
  • Foster teamwork and collaboration.

Pitfalls of incentives

In an organization, depending on the type of incentive, the team may or may not work. For example, if you provide individual employee incentives, that will destroy teamwork and collaboration, and everyone will start working individually.

Wrong incentivization (misjudging a wrong behavior) might destroy the positivity and performance of the organization as a whole.