Page 1 - Lesson Note 4

SAI INTERNATIONAL SCHOOL

Class-12
th
Business studies

Chapter – 6, Directing

Topics: Financial and Non-Financial Incentives
(Lesson - 22)

Financial and Non-Financial Incentives

Incentive means all measures which are used to motivate people to improve

performance. These incentives may be broadly classified as financial and non

financial.

Financial Incentives: 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 a

very important incentive for every individual.

Meaning: Financial incentives refer to incentives which are in direct monetary

form or measurable in monetary term and serve to motivate people for better

performance. These incentives may be provided on individual or group basis. 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. Salary system consists of regular increments in the pay

every year and enhancement of allowances from time-to-time. In some

business organizations, pay hike and increments may be linked to

performance.