Seven types of Incentives used to motivate employees for improving their performance are: 1. Pay and Allowances 2. Productivity Linked Wage Incentives 3. Bonus 4. Profit Sharing 5. Co-partnership/Stock Option 6. Retirement Benefits 7. Perquisites.

Incentives refer to all those measures which are used to motivate people for improving their performance. It means something extra or more than the regular salary or wages. These incentives can be either financial or non financial.

Financial incentives are in monetary form and help in motivating the people for better performance. These incentives are usually provided on individual or group basis.


Following are the main types of financial incentives:

1. Pay and Allowances:

Salary is the basic monetary incentive for every employee. Beside basic salary, it also includes dearness allowance, travelling allowance and at times some other allowances too. It also consists of continuous increment in the pay every year and increase in allowances from time to time.

2. Productivity Linked Wage Incentives:

Sometimes wage incentive plans are linked with payment of wages to increase productivity at individual or group level. Their quantum is based on actual output against targets.

3. Bonus:

It is the incentive which is given over and above the salary or wages of the employees. Many companies offer the bonus during the festivals Diwali, New Year etc.

4. Profit Sharing:


It refers to providing a share to employees in the profits of the organisation. This helps in motivating the employees to improve their performance and to contribute their maximum effort for increasing the profits.

5. Co-partnership/Stock Option:

Under this incentive scheme, employees are offered shares at a price which is lower than the market price. This practice helps in creating a feeling of ownership among employees and motivates them to give their maximum contribution towards organisational growth. For example, in Infosys this scheme has been successfully implemented.

6. Retirement Benefits:

Various retirement benefits such as provident fund, pension and gratuity, act as an incentive to an employee when they are in service in the organisation.

7. Perquisites:

Various perquisites and fringe benefits, such as car allowance, housing, medical aid, education to the children etc. provided by the companies over and above the salary, also help in motivating the employees.