Types of labor incentives (Examples)

Published on 18/03/2024

Types of labor incentives (Examples)

Published on 18/03/2024
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Types of labor incentives (Examples)

Employee incentives are a key strategy for motivating employees, driving them to enthusiastically meet goals and increase productivity.

Companies often create employee incentive plans through which they offer payments or rewards to boost productivity, increase sales, retain key employees, and improve morale and self-management.

What are employee incentives?

Employee incentives are rewards, not necessarily monetary, offered to employees for their performance. It can be given as compensation for total hours worked or for achieving a specific goal.

Incentive payments are used as a motivation tool to boost morale and ensure that employees perform at their best. Rewards can be offered individually or as part of a structured performance metric.

Depending on the size and structure of the company, the strategy of the employee incentive plan may vary. For example, large companies with numerous sales teams often introduce a commission system to encourage employees to achieve higher sales figures. Companies that rely on production often devise an incentive payment system based on the quantity of product produced.

Employee incentive payments should be tailored to the size and function of the company and calculated as a percentage of sales or production targets achieved. The amount paid is usually based on the company’s performance metrics, so it is advisable to have an efficient performance and productivity measurement system.

However, the company is not obligated to pay employee incentives; the payment of incentives and bonuses by the company is classified as additional income and is paid at the discretion of the organization.

Employee incentive payments do not permanently change the employee’s salary; it is an additional and timely payment, as well as deserved.

Types of employee incentives

There are employee incentives that are indirectly manifested within business management, such as paid breaks, holidays, bonuses, overtime pay, verbal recognition, flexible work arrangements, etc. But this time we will better detail the direct employee incentives, in addition to the fixed monthly salary, which would fall into this latter category.

A company may choose to incentivize its employees with cash, bonuses, or with non-monetary incentives, such as training, career plans, experiences, etc. We detail these types of employee incentives below.

Salary incentives

Cash employee incentives are sums of money given to employees on an occasional or periodic basis for their good performance.

One of the salary incentives is commission payment; a lump sum of money given to employees when they complete a task or meet an important goal. Typically, the goal is to sell a certain quantity of goods or services.

Bonuses, another type of monetary employee incentive, are often periodic: year-end bonuses, holiday bonuses, Christmas bonuses, and bonuses for joining or seniority in the company.

On the other hand, cash incentives are also reflected in salary increases, based on each employee’s achievements. It is one of the most commonly used incentives.

Employee incentives for career development

It involves offering employees career development opportunities. This type of incentive can be provided in different ways, some examples are:

  • Reimbursement of course or master’s tuition.
  • Networking opportunities through attendance at specific conferences.
  • Offering different training courses.
  • Job shadowing or mentoring opportunities.
  • Certification training for professional skill advancement.

Non-monetary employee incentives

With non-monetary employee incentives, employees do not receive money per se, but some form of reward. They can be proposals such as personal use of a company car, gifts, vouchers or club memberships. Other non-monetary employee incentives to motivate and retain employees may include:

  • Development opportunities.
  • Promotions within the company.
  • Company meals.
  • A paid trip or experience.
  • Employee recognition programs. For example, employee of the month.
  • Flexible work arrangements.
  • Team Building activities.
  • Tickets to theaters, concerts or amusement parks.

Non-monetary incentives are unique because they can be physical items or experiences that employees receive as a one-time reward for their high performance or achievement of goals.

Advantages and disadvantages of employee incentives

As mentioned earlier, employee incentives are optimal strategies especially for retaining professional talent and maintaining their enthusiasm; they offer significant advantages but also some disadvantages.

The advantages of offering employee incentives in your company are:

  • Motivates employees to achieve goals.
  • Raises morale and increases employee retention.
  • Directly results in increased productivity.
  • Provides recognition for hard work.
  • Can be used to reward individual performance or department/company performance.
  • Improves talent retention.
  • Focuses employee efforts on specific performance goals.
  • Strengthens corporate culture.

Some of the disadvantages of poorly managed employee incentives are:

  • Can create distrust and jealousy among employees.
  • Can make employees focus only on measurable incentive tasks.
  • If goals are set too high and not managed properly, the company may suffer financially.
  • It can be difficult to create clear and objective measurable indicators for each department without generating distrust among employees. Unless you have measurement software that provides performance data objectively and clearly.
  • Managers responsible for performance rating may be influenced by personal relationships.
  • Financially rewarding staff can be a way to “buy compliance” rather than create a healthy corporate culture.

So it is very important to pay special attention when generating an employee incentive plan, to take advantage of its advantages but to move away from its disadvantages, generated by poor management of them.

To sum up, the purpose of incentive strategies or plans is to promote the achievement of proposed goals and objectives in the company, within the different professional teams, giving special recognition to workers for their abilities, skills, performance, and loyalty.

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