The Pros and Cons of Monetary Incentives and Non-Monetary Incentives

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The difference between success and failure in an organization relies on the levels of motivation that employees are exposed to. Some employers choose to offer financial rewards such as bonuses and omissions. Other employers may choose to use non-financial incentives such as jobs enrichment, job enlargement, job rotation, training and promotions. Despite the obvious benefits, some forms of motivation can have a negative effects in the business. Often, employee compensation is one the biggest expense in an organization. Some people work for personal fulfillment whereas others work for the love of what they do. Clearly motivation is unique for diverse people. Underplaying the importance of money and benefits of motivation for people who work would be a mistake. However research shows that people want more from work than money alone, yet obviously a disconnect continues to exist between what employers think are effective motivation tactics. Therefore, the paper discusses the pros and cons of certain behavioral techniques and best way to manage behavior in an organization.


            Using monetary incentive technique has its advantages. Among these pros include the ease and straightforward ways in which this method influences certain behaviors. This method is easy to implement because it can be easily operationalized. Employees who seek to receive a reward tend to work harder expecting better pay. Moreover, the method does not require personalization (Deci, 2015). Nearly everyone would not mind being paid more. Most employees do not feel the impact of recognizing them and therefore, monetary incentive can be an appropriate means of improving morale and retention. Every employer enjoys getting paid and therefore, they would not mind an extra penny. Thus, if a firm wants to compensate its staffs, then rewarding them with extra allowances is a tremendous way of improving their throughput. Moreover, this technique is likely to increase general efficiency and productivity of employees.  

            Direct satisfaction of an employee has an equally effective impact on the amount of energy and quality of work that they deliver. It also improves the working atmosphere and employee attitudes. The feeling that someone’s work is appreciated is always a morale-booster and eventually, the pleasant atmosphere of one person may spread across the company. In such situations, workers not only work harder but they also come up with innovative and creative ways in which they can conveniently achieve their objectives.  Almost everyone wishes to be recognized for their contribution to an organization (Deci, 2015). Monetary styles boosts their morale and ensure that they work harder in order to gain more benefits.

            Incentive systems can also be used as a recruitment scheme. They can also be used as a fair judgment tool because the only parameter used are the time spent in completing a task and the ability to produce quality work. It is a fair tool because each employee will be rewarded according to their performance and this will in turn avoid bad blood and conflict within the organization (Deci, 2015). Monetary incentives are also necessary when rewarding high performing staff. There are high chances that an employee reaps a greater output level than another. In such cases, a direct reward offers a major boost to an individual’s performance level. The monetary incentive approach is also an excellent alternative to promotions. It is not possible to please all employees with a promotion. As a result, the manager can always offer financial rewards in order to appease them and also keep talent within the firm. Monetary incentives of motivation can be used to recruit new and intelligent talent. Potential employees usually look for incentive plans that attract them to an organization. Lastly, most employees feel like they are in control of the amount of income that they receive (Singh, 2017). The incentive mechanism assures employees control their allowances and overall levels of earning.

             Non-monetary incentives rewards employee’s performance by providing lucrative opportunities such as job enrichment, job rotation, quality circles, team working, job enrichment education, training and flexible work hours. Some of the examples include paid holidays, paid vacations, discount vouchers and health benefits. Such benefits tend to increase the retention chances because employees feel wanted and needed in the organization. Personnel are likely to admire an organization that keeps it workforce content and engaged. Secondly, when teams feel that their work is valued and appreciated, they are likely to ensure continued performance irrespective of little or no financial motivation. Recognizing employees in public setting tends to maximize motivation effect. Recognizing good performance means that the worker is highly valued (Singh, 2017).

            Job enlargement widens the task on an operative and therefore, it minimizes monotony and lessens repetition. Job rotation increases interest and motivation because it provides more challenging responsibilities. Equally, job enrichment provides greater responsibility to employees. Staff members can be able to work with high degree of autonomy and make their own decisions (Denny, 2009). A reward around flexible working hours tends to attract employees because flexibility accrues additional off-days. This ensures that employees adjust their work schedules in order to accommodate personal obligations. By structuring the non-monetary incentive program in such a manner, reciprocity is guaranteed because greater flexibility brews stronger commitment. Other incentives may surface from specific needs of workforces. Workers can be requested to make suggestions regarding the best incentives that they prefer. For instance, if most staff are complaining of high gas costs, an incentive program such as gas cards or reimbursement of public transportation would effective. Non-monetary programs can be structures in such a way that they are in line with company’s corporate culture, vision, mission and strategic goals. More importantly, cash awards cost more to the company that non-monetary techniques. Research by Denny shows that employees reported relatively equal performance levels when cash and non-monetary techniques were used effectively (2009).


            Inconsistency is one drawback of using financial rewards to motivate an employee. For instance, if a company performs well in a certain financial period, employers tend to give their employees massive bonuses. The question that arises is what would happen if the company fails to achieve the same results as the previous financial period. This will force the business to lower the commissions (Cox & Klinger, 2011). Consequently, the pay reduction will lower the employee’s morale. Secondly, financial rewards inhibits teamwork and productivity. A team can often get more work done as opposed to working on an individual basis. Rewarding individual achievement rather than the team can cause negative competition and divisiveness. For example a company that gives bonus based on work accomplished is likely to motivate one person and ruin teamwork in the organization. More so, there are instances that staff may not be paid within the specified time. This may demotivate the worker. Additionally, inability to provide all members with rewards may seriously hamper productivity in the company. There are chances that employers may not constant pay bonuses and commissions due to market factors.

            Another potential disadvantage of monetary form of motivation is that it may lead to burn out. For instance, using financial rewards as a form of motivation may force employees to put in extra hours (Cox & Klinger, 2011). Moreover, staff may work longer days and nights with the aim of receiving the reward. Overwork is likely to lead challenges such as lower morale and lower productivity.  Performance-based forms of motivation can also have a big impact on customer relations. For instance, many sales representatives received bonuses based on the number of customers they sell their product to. This means that salespeople are likely to employ aggressive means of selling, and this may turn off the customer. Also, when strong financial incentives are put in place by the company, many employees are likely to cross certain ethical boundaries. When one values a reward, they tend to choose the easiest and shortest path to attaining the reward. Moreover, use of monetary incentives as a form of motivation causes pay inequality and envy between the employees. They would tend to assume favoritism by the company/manager. It is easy for other staff to see the reward system as subjective and thus, a company needs a way of calculating merit and benefits in order to justly reward a staff member (Denny, 2009).

            Fiscal-based incentive schemes create inequality because co-workers may overlook their performance factor. Moreover, monetary incentives involves a lot structuring in order to ensure a fair monetary incentive plan. For an organization that is looking forward to implementing a motivation plan, they would require a lot of time for them to create a scheme that is beneficial on all aspects. Some monetary incentives may be less effective in certain scenarios. For instance, if an employee works from home, it becomes difficult to track their performance record (Singh, 2017).

            Equally, non-monetary incentives has a number of cons. Firstly, the structure of the workforce may hinder the intended effect of this motivations tool. If a large part of the staff is not central in producing added value in an organization, there is little chance of productivity (Child, 2015). External factors may also limit the effectiveness of job enrichment and job enlargement. Once workers are used to certain ways of motivation, it may prove difficult to re-motivate them when the company is in recession or when cost cutting is necessary. Some methods such as job rotation can be time consuming because it involves systems training and implementation. Existence of theory X managers means that supervisors may see no value of using non-financial methods especially when workers are not committed to a business or quality of its products.  

            Another possible negative effect is that employees may find job enlargement as means in which the company uses employees to carry out extra work for the same pay. On the other hand, job rotation may reduce productivity because workers are unfamiliar with new tasks. Moreover, it involves a lot of training and development (Child, 2015). To add on, job enrichment may require further investment of employer’s time in providing guidance on how to carry out new duties. Also, since employees are accorded freedom to make their own decisions, they may cause the firm further loss due to their inexperience.   


            Most employers are figuring out ways of maximizing productivity through motivation. However, it is imperative for them to understand that motivation is both intrinsic and extrinsic. There are plenty of techniques of motivation but most of them have negative and positive aspects.  The two broad methods discussed are monetary and non-monetary incentives. If employers do not want to be disadvantaged, they should come up with incentive schemes that are fair and likely to boost overall performance. This can be done by monitoring an employee’s behavior and how they respond to certain incentives. A proper mix of monetary and non-monetary techniques is crucial in creating a balanced motivational technique.


Child, J. (2015). Organization: Contemporary principles and practice. John Wiley & Sons Inc.

Cox, W. M., & Klinger, E. (2011). Handbook of motivational counseling: Goal-based approaches to assessment and intervention with addiction and other problems. Chichester: John Wiley & Sons.

Deci, E. L. (2015). Intrinsic Motivation. Boston, MA: Springer US.

Denny, R. (2009). Motivate to win. London: Kogan Page.

Singh, B. D. (2017). Compensation and reward management. New Dehli: Excel Books.

October 30, 2023
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Company Motivation

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