What is an incentive?

Definition: Incentive

Everyone is currently talking about it, but you don’t really know what it is? First, let’s clarify what an incentive actually is.

Especially during the Corona pandemic, the topic has become bigger and more important, because home office and short-time work have affected or even completely destryed the bond to the company and to the colleagues in many places. People only see each other via screens, communicate via telephone or video meetings, and casual conversations in the hallway or at the coffee machine have been eliminated. Many employees are unmotivated, no longer know what they are working for or who they are working for, and everyday working life has been anonymized to a certain extent.

What helps now is an incentive. Because employees need to be motivated in precisely these phases or situations, and they need to be tied back to the company. If this does not happen, the company’s sales figures will collapse and employees may even quit.

In order to prevent this and to keep employees for as long as possible and to maintain the motivation on a high level, which can reduce sick leave and absenteeism and to generate more revenue, companies often use incentives.

The term is mostly used in the context of business, as in many cases it refers to cash or non-cash bonuses. But other measures can also be used as incentives, such as trips or experiences. And it’s not always just employees who are addressed – incentives can also be used as a customer incentive to motivate customers to buy a particular product or service.

In short, incentives are usually economic incentives to encourage customers and employees to act in the interests of the company. Incentives offer many benefits. Whether they are used to strengthen the loyalty of employees, to promote team spirit within the workforce, to improve morale within the company as a whole, or as a purchase and decision incentive for customers to strengthen sales of a product or service – incentives can be used in a variety of ways and are nowadays indispensable for the success of a company.

Types of incentives

What types of incentives are there? As already mentioned, the most popular type is probably the cash or non-cash bonus, such as Christmas bonuses or additional commissions for particularly good sales figures, but praise, certain titles or bonus programs are also among the incentives. More unusual are incentive events or incentive trips.

Incentive trips

Like the other incentives, the latter are intended as a reward for work performed. However, with this type of incentive, employers have the opportunity to reward employees in a special way. Unlike a purely monetary reward, an incentive trip is far more personalized – i.e. tailored to the needs and wishes of the respective target group – and offers additional opportunities. After all, it’s not just about leisure and relaxation – additional aspects, such as team-building measures and increased productivity due to a break, can also be integrated. This can improve the working atmosphere and teamwork. The travel location and the respective program are scalable and can therefore be perfectly adapted to the company and the employees. As an incentive to participate in such a trip, companies usually set specific goals or key performance indicators in advance that must be achieved by the employees.

Incentive events

Incentive events, on the other hand, can be invitations to entertainment events or corporate events including honoring employees. Event agencies play a major role here. Because such events are not easy to organize – to integrate all important points, so that an incentive also achieves the desired effect in the form of an event, large sums are spent for location, catering and entertainment and should therefore be planned and carried out professionally. But action-packed team-building events can also be used as incentives. Tasks have to be mastered in the group in order to strengthen cohesion.

Monetary and non-monetary incentives

All these types can be divided into two categories of incentives: The non-monetary and the monetary incentives. Non-monetary incentives are the incentive trips or events just explained, but praise and recognition are also forms of non-monetary incentives. They are not tangible and although a lot of money is often spent on trips and events, they have no direct monetary benefit for the recipient.

This is in stark contrast to monetary incentives. These clearly include non-cash and cash rewards, such as vouchers or bonuses, but also social benefits, such as nursing or health insurance.

However, these two categories differ not only in their monetary benefit for employees – the main difference here lies in the respective objective. Non-monetary incentives usually have a more long-term effect, as financial incentives are not as effective in motivating employees. This is because recognition of performance and a good feeling within the team and the company as a whole usually take precedence over financial benefits. In addition, the cooperation with colleagues can only be improved through non-monetary incentives.

Areas of application and tips

Incentives can be used in different areas. For example, they are often used in sales to effectively increase sales figures and to increase the ambition in the team to achieve something together. But they can also be used in human resources, specifically for individual employees or in the entire company.

Examples of incentives for employees are company cars – which count as non-cash bonuses – or very simple: expressing appreciation by bringing fruit or cake.
In order to use incentives to encourage customers to buy, customer events are organized, for example, or free giveaways, vouchers, product additions or promotional articles are distributed.

Do you have any questions, comments or requests regarding our blog or our services? Then feel free to contact us – we look forward to your feedback. Don’t miss our next blog post, where we will present the next event type in detail.