A financial incentive motivates actions which otherwise might not occur without the monetary benefit. In the context of existing economic system, money has become a means to satisfy the physical needs of daily life and also of obtaining social position and power. Since, money has the purchasing power, it becomes very important incentive for every individual.
The financial incentives generally used in organizations are listed below:
(i) Pay and allowances: For every employee, salary is the basic monetary incentive. It includes basic pay, dearness allowance and other allowances.
(ii) Productivity linked wage incentives: Several wage incentive plans aims at linking payment of wages to increase in productivity at individual or group level.
(iii) Bonus: Bonus is an incentive offered over and above the wages/ salary to the employees.
(iv) Profit Sharing: Profit sharing is meant to provide a share to employees in the profits of the organization.
(v) Retirement Benefits: Several retirement benefits such as provident fund, pension, and gratuity provide financial security to employees after their retirement.
(vii) Perquisites: In many companies perquisites and fringe benefits are offered such as car allowance, housing, medical aid, and education to the children etc., over and above the salary.