How monetary incentives affect the performance of an organization |Best MBA Colleges in under PGCET in Bangalore

Posted by Dr.SUGANYA .S On 26/11/2021 09:31:09

The success and the survival of any organization are determined by the way the workers are remunerated and rewarded (Adams, 2013). The reward system and motivating incentives will determine the level of employees’ commitment and their attitude to work. As noted by Akerele, (2011) poor incentives packages have been a major factor affecting employees’ commitment and productivity. The organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives). According to Campbell & Chia, (2013) organizational performance encompasses three specific areas of firm outcomes: financial performance (profits, return on assets, return on investment, etc.); product market performance (sales, market share, etc.); and shareholder return (total shareholder return, economic value-added, etc.). Specialists in many fields are concerned with organizational performance including strategic planners, operations, finance, legal, and organizational development.


In recent years, many organizations have attempted to manage organizational performance using the balanced scorecard methodology where performance is tracked and measured in multiple dimensions such as financial performance (e.g. shareholder return), customer service, social responsibility (e.g. corporate citizenship, community outreach), employee stewardship, performance measurement systemsperformance improvement and organizational engineering. Business organizations including the oil and gas sector exist to produce goods and services, which they hope to exchange for money to maximize profit. Best MBA Colleges under PGCET in Bangalore


Concept of Monetary Incentives

An incentive is a reward given to a person to stimulate his or her actions to the desired direction (Opara, 2013). Incentives have motivational powers and are widely utilized by individuals and large organizations to motivate employees. They can either be monetary or non–monetary. Monetary Incentives are financial incentives used mostly by employers to motivate employees towards meeting their targets. Money, being a symbol of power, status and respect plays a big role in satisfying the social–security and physiological needs of a person. Money, however, seizes to be a motivator when the psychological and security needs are satisfied.

When creating a reward program to motivate employees, decision-makers and company owners need to understand that the reward or incentive neither guarantees quality output nor loyalty but just a bonus that encourages workers to meet their goals without compromising on quality. Guerrero, Andersen, and Afifi. (2007) explains some of the common examples of monetary incentives as thus;

  1. Piece Rates – This is mostly used in production industries where employees are given a certain amount of money on each produced piece. Piece rates motivate employees to work harder and quickly to produce more pieces as each has a monetary incentive attached to it. However, when issuing piece rates, production supervisors must ensure quality is not compromised.
  2. Pay Raise – These are mostly offered to employees who have worked in a company for a considerable longer period of time. Some companies also give pay rises to employees who have reached a certain level of production or those who have completed the required training programs. Some offer annual salary increments to loyal workers.
  3. Bonuses – Another good form of monetary incentive is the issuance of bonuses. These might be bonuses to individuals who have met their sales quotas or even bonuses to teams that have completed their projects in time or have surpassed their production targets. Some companies give yearly Christmas bonuses to long-serving employees as a way of rewarding loyalty
  4. Sharing Profits – This is another excellent way of rewarding employees. A small profit portion is shared with employees based on their position, duration with the company and input in attaining the overall set goals. Profit-sharing is preferred by most companies since it gives employees a sense of belonging and ownership.
  5. Contests – These are mostly offered to sales and production personnel. An additional price or bonus is given to the employee or to a team with the highest production level. Again, employers can offer cash rewards to employees with the best suggestions just to encourage more input in terms of positive ideas that improve sales, production or performance.

Other than the above forms of monetary incentives, others may include; retirement and education funds, off duty payments and payments to different employee training programs among others.

Impact of monetary incentives on performance of the organization as thus:

  1. Boosts morale – employees like to be recognized and rewarded for improved performances. Monetary rewards not only boost morale for high performance but also improve productivity. This is because employees will always work hard to surpass their employers’ expectations so as to earn an incentive.
  2. Easy and direct – the monetary incentive is a straightforward way of rewarding deserving employees. It is easily noticed and adaptable.
  3. Improves the working environment – it makes employees develop a feeling that their work is noticed and that they will be paid for further accomplishments and achievements. This improves the working environment as employees build a positive approach to work and become more innovative in adopting different ways of operation
  4. Element of life control – some employees consider monetary incentives as an extra source of income or side hustle. This offers an element of control to their income since they know they can increase their overall earnings and still get recognized for it.
  5. No personalization – Non- monetary incentives need to be tailored to suit individual preferences. This is not the case for monetary incentives as almost every need has money value attached to it and therefore will provide direct satisfaction to employees.

Clearly, it would be difficult to overestimate the significance of monetary incentives in contributing to employee satisfaction. They have always been indispensable in stimulating employees’ performance. Financial incentives are used to attract competent people to join an organization in the first place, to persuade them to remain there subsequently, and finally to give them an incentive to achieve a high level of performance. 

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