Relevance of Non- Monetary Incentives in an Organization

AUTHORS
Vijeta Chauhan*
Independent Researcher
Banasthali University, Niwai
Contact No. 7737445128
Email: vijetachauhan17@gmail.com

Electronic copy available at: http://ssrn.com/abstract=2623828

 ABSTRACT

Monetary Incentives form an important part of an employee’s life, but there are some things
which money can’t buy. The main objective behind providing incentives is to motivate employee
to provide best of his abilities. Incentives like flexible work hours, payroll or premium
contributions, training, health savings or reimbursement accounts, or even paid sabbaticals are
equally important. These are called Non monetary incentives. When organizations pay attention
to non-monetary tools such as opportunity of increasing holiday and family benefits, the
employee may perceive the organization as a supporting and caring organization. Rewards are
important factors that explain certain job aspects that contribute significantly to the organization
such as job satisfaction. The major objective of the study is examining the importance of non
monetary incentives in an organization.

The study is directed towards examining different dimensions of Non Monetary Incentives.
Comparative study of monetary and non monetary incentives has been done which bring us to
the conclusion that in order to bring “good work motivation” and not only “money motivation”
different types non monetary incentives must be introduces in an organization. Non-monetary
recognition can be very motivating, helping to build feelings of confidence and satisfaction.

Keywords: Non Monetary Incentives, employee, motivation, job satisfaction

Electronic copy available at: http://ssrn.com/abstract=2623828

Introduction

Incentive is an act or promise for greater action. It is also called as a stimulus to greater action.
Incentives are something which are given in addition to wagers. It means additional
remuneration or benefit to an employee in recognition of achievement or better work. Incentives
provide a spur or zeal in the employees for better performance. It is a natural thing that nobody
acts without a purpose behind. Therefore, a hope for a reward is a powerful incentive to motivate
employees. It is not always possible to give continual monetary benefits to employees and
constantly increasing their salaries disproportionately. There are some other stimuli which can
drive a person to better. This will include job satisfaction, job security, job promotion, and pride
for accomplishment. Therefore, incentives really can sometimes work to accomplish the goals of
a concern. The need of incentives can be many:-

1. To increase productivity,
2. To drive or arouse a stimulus work,
3. To enhance commitment in work performance,
4. To psychologically satisfy a person which leads to job satisfaction,
5. To shape the behaviour or outlook of subordinate towards work,
6. To inculcate zeal and enthusiasm towards work,

To get the maximum of their capabilities so that they are exploited and utilized maximally. It is
suggested in the literature of human resource management and organizational behavior that non-
monetary incentives act effectively in motivating employees. The essence of incentives is to
establish linkage with desired behavior and the outcome that makes the employee feel
appreciated (Whetten and Cameron, 2007). Non-monetary rewards play a significant role in the
perception of the employee regarding the reward climate in the workplace (Khan et al., 2013).
When organizations pay attention to non-monetary tools such as opportunity of increasing
holiday and family benefits, the employee may perceive the organization as a supporting and
caring organization. Rewards are important factors that explain certain job aspects that contribute
significantly to the organization such as job satisfaction. Rewards, therefore, involve all
economic benefits that are being supplied by the organization-pay, promotion, verbal recognition
and
Non- monetary benefits or rewards to employees for their performance and contribution are one
of the best methods of motivating them. Non- monetary incentives are as important as monetary
incentives. In today’s workplace companies and managements are increasingly using non-
monetary rewards as an incentive to motivate and influence employee performance, as well as to
meet the financial and productivity objectives of the company. Organization and their HR
managers constantly strive to find innovative ways to rewarding performance.

Non financial or non-monetary rewards include all other influences, planned or unplanned which
stimulate exertion. Merely cash incentives cannot help in solving the problems of industrial
productivity. In order to infuse enthusiasm in a worker for greater and better work, non-monetary
incentives have a distinct and significant role.

What are Non Monetary Incentives and how are they important for motivating employees.

Non-monetary incentives are used to reward participants for excellent behavior through
opportunities. Non-monetary incentives may include flexible work hours, payroll or premium
contributions, training, health savings or reimbursement accounts, or even paid sabbaticals. If it
comes to environmental behavior, often labeling and recognition certificates are used. This may
include stickers, T-shirts with banner logo etc. Non-monetary incentives refer to tangible and
intangible means of motivating and rewarding employees. The humanistic philosophy for using
these incentives is that employees do not conform to the “Men as machines” stereotype.
Employees are social beings and non-monetary incentives may encourage them to achieve their
own personal goals as well as their organization’s goals more readily, effectively. Jack Zigon
defines rewards as "something that increases the frequency of an employee action". This
definition points to an obvious desired outcome of rewards and recognition: to improve
performance. Non-monetary recognition can be very motivating, helping to build feelings of
confidence and satisfaction.

The importance of non-monetary incentives in motivating the employees is supported by various

studies and mentioned in writings of many authors. Wiscombe (2002) argued that what people
really want is to be recognized for making contribution to the job, thus, recognition and praise
are among strong motivators. In her opinion, non-cash incentives can not only be cost effective,
but also can contribute a lot to raising morale, increasing productivity, improving quality, safety
standards and customer service. Non-monetary incentive is the answer that Wiscombe gives to
the question of how to maintain and improve worker morale while retaining the costs.

Bob Nelson (2001) also supports the view that there is a strong link between non-cash incentives
and improved job motivation. He thinks that noncash incentives lower stress, absenteeism,
turnover and raise morale, productivity, competitiveness, revenue and profit. According to his
study, which was conducted from 1999 to 2000, in 34 organizations of U.S. ranging from
Universal Studios to the U.S. Postal Service, 90.5% of the managers agreed on the idea that
recognizing employees helps them better motivate their employees and 84.4% of the managers
responded that providing non-monetary recognition to the employees when they do good work
helps to increase their motivation and performance. On the employees’ side, the research
revealed the fact that for the 77.6% of the employees, it was very or extremely important to be
recognized by their managers when they do good work. These findings have further confirmed
the importance and effectiveness of non-monetary incentives in the motivation of personnel.

In comparing the cash incentives with non-monetary incentives, Dean R. Spitzer (1998) notes
that the correlation between the monetary value of rewards and motivation is not very high and
in most jobs the best performers are not necessarily the highest-paid ones. He emphasizes that
money as an incentive tends to create “money motivation” rather than “good-work motivation”
in the sense that when people struggle for monetary incentives, they may sacrifice quality to take
the shortest and fastest way to maximize their monetary gain. Moreover, it is likely that the
employees will soon become “habituated” to monetary rewards and start to see them as
entitlements. Spitzer also draws attention to a study showing that a pay rise, on average, has a
motivational impact of less than two weeks.

In the light of these, it can be argued that non-monetary incentives with their advantages have the
potential to motivate public employees, however, there is no guarantee that they can always lead
to efficiency and effectiveness in the work place. Also, the existence of highly motivated
employees in the workplace does not necessarily mean that they are the best performing ones.
Performance level is related to a much variety of organizational and workplace related
circumstances.

Organizations supporting Non Monetary Incentives

The financial sector launched in the beginning of 90s has thrown open the banking and financial
sector to global competition. The banks have now to match up to the global standards in the
matter of technology, accounting, capital adequacy, Risk management, corporate governance,
and Human resource management. The changes in the business parameters and process
innovations have cast new challenges on the bankers. In this background, it is necessary to bench
mark the performance standards of bankers in different areas of operations.

The most obvious issue that bedevils a central bank like RBI is that of compensation. How does
it attract new talent and match the salaries and the compensation offered by private sector and
multinational employers? Compounding these problems seems to be the fact that the middle and
junior management levels in the industry, where the relative attrition has been the highest, have
seen the maximum wage hikes in the recent past.

Significantly, while as pointed out, RBI is not in a position to offer compensation packages that
are as attractive as other private sector banks in today’s context money can always be matched
and topped by competitors, a serious attempt perhaps needs to be made to understand and
highlight an important dimension of the dilemma: the pay packet may not be the only
compensation that attracts talent. This is especially so as the monetary, social and psychological
needs of talent today are in a melting pot.

It is therefore crucial for RBI to effectively communicate to its prospective employees that the
bank indeed offers quite an attractive overall compensation package when the entire set of perks
and benefits that its personnel are eligible for. Some of these components that need to be
particularly showcased are:

1. Good Housing Facilities

2. Liberal Medical Facilities
3. Superannuation benefits notably pension
4. Leave and Travel Facilities
5. Furnishing/ communication/Telephone, etc. As also other perks.
In fact, aspiring job seekers, it is widely believed, are increasingly looking for a mix between
opportunities for personal growth, autonomy, Job delight, social esteem that comes with
responsibilities which are entrusted, diversity, stability, and of course, remuneration. RBI gives
them all that and more. Central Banks and central bankers over the world, command respect and
awe, nationally and internationally. This has to be efficiently conveyed to the prospective
employees and they should be made to feel proud to be in an exclusive profession. Now we can
say that, Non-monetary rewards should form one important part of a complete employee
recognition program along with monetary rewards. Each motivates employees differently. Non-
monetary rewards can be used for either individual.

Relevance of Non Monetary Incentives in Today’s World

Captain Rahul Sharma, Sr. Vice President & Head- Human Resources and training DHFL
housing finance group rightly says “employers need to touch the employees heart, mind and soul
by engaging the employees in the workplace which leads to motivated employees and better
performance.

Human resource managers need to apply different strokes for different folks monetary rewards
such as bonus, performance incentives, regular rewards, recognition in team meeting and annual
meetings, progression and promotion in regular cycles,360-degree performance management
system, and so on. Most often, managers need to use a combination of all these strokes to keep
the employees motivated.

Psychologists have suggested the use of these strokes since a long time. According to
K.Mahabub Ali, Faculty and Psychological Counselor at the National Industrial Security
Academy CISF, “Not getting appreciation or acknowledgement, in other words what we call it as
strokes in psychological parlance; the employees will become stroke hungry, which would affect
the motivation and morale of the employees. As the stroke is defined as “a unit of human
recognition that gives us stimulation, every organization must adopt it as a policy from top to
bottom to encourage the habit of giving positive strokes, as employees feel greatly motivated
when they receive positive strokes. Giving positive strokes not only enhance the motivation
levels of the employees, it also leads to potential blossoming leading to more and more
motivation and productivity.”

Most new employees believe that remuneration is the top most priority in their lives. However,
as they embark on their career, they realize the importance of factors such as professional
success, competitive atmosphere, integrity, passion, and pride in their work and recognition for
their work to keep them motivated. And, such a transformation might not even happen for some
employees.

Mohan Menon, Chief Personnel Officer, South Western Railway opines that, “Mere monetary
incentives do not appear to be the real motivators, though money plays a significant part what is
perhaps a stronger driver as far as motivation goes is the pride of possession, a sense of
ownership and a passion that one brings to work that energizes the workplace.”

“Pride and passion in work, besides nurturing a sense of ownership would hold the key for
effective performance.” As experts suggest, most non-financial factors that focus on individual
empowerment and intrinsic need satisfaction work better than the financial methods of
motivation. However, Captain Rahul Sharma opines “Both monetary and non monetary awards
are important for employees to keep them motivated. The quantum can change as per employee
profile. The factors that motivate an individual keep changing as one climbs the ladder of age
and maturity. For an employee, who is at lower management level, money motivates him but as
he goes higher up in the hierarchy – the working climate, recognition, and free time for family
are the things that motivate him and are more important.

It is necessary for every organization to establish an ecosystem of implementation and feedback

to their existing policies. It is also necessary to revamp these policies as frequently as possible in
tune with the changing times and build the organization culture accordingly.

Finally, Captain Rahul Sharma concludes by saying that, “All these tools can be implemented,
but we need support to do that and it would be the culture of the organisation that would allow us
to implement these gestures and tools that would lead to employee motivation and would make
wonders to the employee and the organisation.”

According to a survey of more than 400 employees there are top five rewards offered by firms
nationwide : Companies offering
Advancement opportunities 76%
Flexible hours 73%
Learning new skills 68%
Career development 45%
Work at home 43%
Source : "NON-MONETARY REWARDS." The Business Journal - Serving Phoenix & the
Valley of the Sun 31 Aug. 2001: 24. InfoTrac Management Collection. Web. 13 Feb. 2012.

According to the recent McKinsey Quarterly survey the respondents view three noncash
motivators—praise from immediate managers, leadership attention (for example, one-on-one
conversations), and a chance to lead projects or task forces—as no less or even more effective
motivators than the three highest-rated financial incentives: cash bonuses, increased base pay,
and stock or stock options (exhibit). The survey’s top three nonfinancial motivators play critical
roles in making employees feel that their companies value them, take their well-being seriously,
and strive to create opportunities for career growth. These themes recur constantly in most
studies on ways to motivate and engage employees.

Finally we can say that the Companies around the world are cutting back their financial-incentive
programs, but few have used other ways of inspiring talent. We think they should. Numerous
studies have concluded that for people with satisfactory salaries, some nonfinancial motivators
are more effective than extra cash in building long-term employee engagement in most sectors,
job functions, and business contexts. Many financial rewards mainly generate short-term boosts
of energy, which can have damaging unintended consequences. Indeed, the economic crisis, with
its imperative to reduce costs and to balance short- and long-term performance effectively, gives
business leaders a great opportunity to reassess the combination of financial and nonfinancial
incentives that will serve their companies best through and beyond the downturn.

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