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Definition: Incentives

An incentive is a factor that motivates or encourages an individual to perform an action. It tends to spur an action or greater effort towards the same action or it could act as an award to the previous efforts and increased productivity. It can be both positive (reward) or negative (exemption from punishment).

The incentives can be divided based on the agent acting as incentive:

  • Remunerative incentives or financial incentives – Material award, most commonly money, serve as an incentive here to perform a particular action.
  • Moral incentives – the incentive here is to get pride, self esteem, self satisfaction, approval and admiration on choosing the right course of action out of the available alternatives.
  • Coercive incentives – this is a forced method of making a person in the desired way. Here the incentive is to avoid punishment and physical harm to self and loved ones or to avoid destruction of property.
  • Natural incentives – The incentive here is not proposed by an agent but by the person himself. It includes curiosity, fear, anger, truth, joy, control etc

A company needs to develop an incentive scheme for its employees of all designations so that they are aptly motivated to perform their job and also they do not fell less incentivized then their colleagues. It includes the perks provided by the company to its employees like medical facilities, vacations, gifts, etc and also includes the work culture, effort recognition, timely promotions and value addition.

Hence, this concludes the definition of Incentives along with its overview.

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