It's no secret that people are motivated by money. Especially during a cost of living crisis, monetary incentives like salaries and bonuses are a key concern for employees who have bills to pay and mouths to feed.
In fact, The Guardian recently reported that UK workers are so anxious about the cost of living crisis that their productivity at work is being impacted, with two thirds of managers seeing issues such as lack of engagement and absenteeism among their staff.
Although there's a lot of focus in the news about the financial types of incentives for workers, this does not mean that non-financial ones are any less important. As inflation and price hikes hit businesses, non-financial incentives are becoming increasingly important, too.
So, why are both financial and non-financial incentives so important? And what can employers do to balance the two? Let's take a closer look at the advantages and disadvantages of both kinds of incentives and why they should ideally be used together.
Financial incentives are incentives for staff that involve money, such as an employee's compensation. These are often referred to as reward or financial reward.
Examples of financial incentives
Salary: The main financial incentive that employees receive from their employer, an employee's salary or wage may also increase if they perform well.
Bonuses: Bonuses in the form of extra money, benefits, or gifts are sometimes offered directly in reward for an employee meeting a target or goal, or are associated with a particular time of year or holiday.
Commissions: Most common in sales roles, commissions are a financial incentive where the employee gets paid a proportion of the sales they make on behalf of the business.
Stock options: A business may allow employees to buy stock options after they have been in the organisation for a particular amount of time, acting as an incentive for them to stay so they can own part of the company.
Profit sharing: Another type of financial reward, profit sharing allocates a proportion of the business' profits to eligible employees to reward their work.
The importance of financial incentives
As we mentioned earlier, monetary reward has a real and significant impact on employees. With 88% of UK workers currently unsure about whether their current role will be able to sustain them financially throughout the cost of living crisis, it's no surprise that many employees are looking for new and higher paying jobs to help them afford the surging costs of energy bills and everyday goods.
At its most basic, the right compensation gives employees the freedom to focus on their jobs without worrying about money. The advantage of less stress is that team members can show higher motivation, morale, and productivity in their roles. Moreover, these incentives also encourage employees to work harder, especially if there's a bonus on offer for meeting their targets.
Financial incentives are also crucial for ensuring retention of your top talent. Monster recently reported that 96% of US workers are looking for a new job in 2023, with 40% citing a need for higher income due to inflation as their motivator to seek new employment.
Monetary incentives are always important, and they're more important than ever in the current economic climate. However, the advantages of these types of rewards only go so far. It's important not to neglect the benefits of non-financial incentives.
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Non-financial incentives are types of reward that motivate employees by fulfilling their social and emotional needs instead of their financial ones. This doesn't mean that non-financial incentives necessarily cost nothing for an organisation to provide, but they're often cheaper than financial incentives.
Examples of non-financial incentives
Praise from managers: Recognition and praise given to employees in one-to-one meetings or notes from managers can boost morale and motivate employees to work harder.
Public recognition: Being shown appreciation in a team meeting or in a company-wide email is a great incentive for many employees and has benefits for overall employee experience.
Peer-to-peer recognition: Recognition doesn't just have to come from above. Peer-to-peer recognition is an important incentive for employees where their team members acknowledge their hard work and achievements.
Promotion and career opportunities: Often overlooked, promotion and career development opportunities can also act as an incentive for employees. Note: these also have a financial component and promotions are associated with a rise in salary.
Perks: Work perks such as flexible working arrangements and an extra day of paid time off here and there are great incentives for your staff. These are relatively cheap to implement and can boost wellbeing in addition to employee engagement.
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The importance of non-financial incentives
Monetary benefits alone often aren't enough to keep employee engagement and motivation levels high. Although the cost-of-living crisis has understandably shifted a lot of attention to employees' compensation and financial wellbeing, it's important to remember that non-financial incentives are another essential motivator for staff.
The importance of non-financial rewards and recognition goes together with shifting attitudes to work following the pandemic. Research from Gartner shows that most employees (65%) say that the Covid-19 pandemic has made them 'rethink the place work should have in my life' and 'shifted my attitude toward the value of aspects outside work'. Meanwhile, 58% said that the pandemic has made them want to contribute more to society.
It's clear that people are more driven by purpose than ever and are looking for roles in which they feel purposeful and valued. Another survey found that 46% of US workers had left a job because they felt like they were not appreciated, while 65% said they would work harder if they felt their contributions were appreciated by management. This is especially important for Gen Z workers, who tend to care more than older cohorts about workplace perks, benefits, and company culture.
In short, non-financial benefits and incentives are all about making your organisation a great place to work where employees feel appreciated, motivated, and supported to do their best work. The advantages of this are clear in terms of employee engagement, productivity, retention, and more.
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While there are advantages and disadvantages to both types of incentives, the bottom line is that both are necessary in your organisation. While monetary reward supports employees' financial wellbeing, non-financial incentives support their social and emotional wellbeing. Together, these employee incentives make staff feel supported and appreciated so that they can do their best work.
When budgets are tight, it's more important than ever to get non-financial incentives right to prevent turnover, disengagement, and damaged productivity. Yet, in one poll, 36% of employees reported that a lack of recognition was their top reason for considering leaving their jobs. HRs can't afford to ignore the recognition crisis that is brewing in many organisations.
That's why we created Appreciation, the standalone employee recognition platform that makes giving recognition easier than ever. Allowing anyone to send personalised appreciation messages to anyone in the organisation, Appreciation facilitates a strong and supportive company culture of peer-to-peer recognition.
Want to learn more about how XCD Appreciation can boost your reward and recognition strategy? Find out more on the Salesforce AppExchange by clicking the button below: