Human resources or as commonly referred to as employees are one of the important assets of any organization. They are a critical factor of production i.e. without them no production of goods or delivery of services will take place. Another factor that makes employees even more important is the fact that their output can be significantly improved. Capital resources such as machines and funds cannot be motivated to produce more but the same cannot be said for human resources. Human resources can be motivated to produce optimally (Armstrong, 2011). The most common motivators are monetary and non-monetary incentives. Sine people have different views on matters; value and appreciation, it is important to understand what incentives can be used in order to ensure employees are working at full capacity. This essay thus presents a comparison of the monetary and non-monetary incentives that are commonly used.
The primary difference between the two types of incentive is the type of the reward that an employee receives (Armstrong, 2011). As the name suggests, monetary incentives are usually in the form of money or are money-based. They are usually in the form of; paid vacations, stock options, profit sharing and bonuses. On the other hand non-monetary incentives are not money-based. They include; flexible working schedules, conducive working environments, autonomy of work and responsibilities and further training and development. It is important to note that, no matter what type of incentive the organization offers, it will always have a fiscal benefit to the employee. For example, non-monetary incentives such as company transport and daycare facilities reduce the expenses of the employees and thus remain a fiscal benefit.
However, both monetary and non-monetary incentives, are used to laud good performance. They are used to reward employees who continue to perform and surpass all expectations. In this manner, organizations hope to build healthy and competitive working environments where employees can challenge one another to produce more and earn rewards.
Incentives are used to improve the effectiveness of employees. However, different scholars have different opinions about the effectiveness of the tow incentives. Most human resource management scholars argue that the monetary-based system of incentives is more effective. This is because people primarily work to earn salaries which enable them to meet their daily needs and, therefore, supplying more money-based incentives would increase their zeal to work. Those who back non-monetary incentives disagree by insisting that these incentive are just as effective as their counterparts. The Hawthorne Studies, for example, showed how little praise and recognition from superiors went a long way in increasing the productivity of the workers (Armstrong, 2011).
Another important point of contrast between the two incentives are the potential problems associated with them. Although both yield expected results, some unexpected challenges crop up. However, it is the variation in the challenges associated with the two incentives that make them different, For example, monetary incentives are more performance-oriented and therefore employees are forced to work in a manner that allows them to receive more rewards (Armstrong, 2011).. In the long-run, the creativity and ingenuity of the employees is stifled. Employees working under the monetary-based incentive program are more concerned with receiving high rewards and do not work to improve the company and its products.
Non-monetary rewards on the hand are uncountable and are therefore not easy to keep track. Their uncountable nature makes it difficult to make a correlation between motivation and output (Armstrong, 2011). One cannot clearly establish the amount of non-monetary rewards that will yield a unit change in the level of output by the employees. With monetary rewards, human resource managers can clearly identify at what level of motivation will lead to an increased output up to the point whereby any more rewards will not yield any change in the level of output.
Psychology studies have however showed that the non-monetary rewards especially praise and recognition have a long-lasting effect on an individual (Armstrong, 2011). For example, it was found that recognizing a particular employee as the employee of the month, for say the month of, January. The same employee will strive and retain the same title for the next two to three consecutive months because he/she still has the motivation to perform. Monetary rewards, if poorly managed, will lead to unhealthy competitions in the workplace and therefore disrupt the organization’s processes instead of reinforcing them. Non-monetary rewards lead to minimal or no disruptions.
The manner in which these two types of incentives are dispensed is also an important factor that needs to be examined. Most monetary rewards are directly offered to employees irrespective of their position and age. The same is not true for non-monetary rewards. These have to be customized to meet the specific goals of the employees at the time of their dispensation. According to Nelson (1999), the age of an employee plays an important role in the choice of the non-monetary rewards. Nelson (1999) identified that people born between 1930 and 1945, to whom he referred to as mature workers, preferred flexible working schedules and part time working hours as incentives while the Generation Yers (people born after 1981) preferred professional development, attentive employers and feedback.
In conclusion, any human resource manager should understand which incentive is more attractive to his or her employees. What remains even more important is how these incentives programs are managed. They should remain up-to-date with the preferences of the employees’ especially non-monetary incentives i.e. the organization should provide rewards that employees actually want to ensure success of the motivation process. The human resource manager should ensure that the incentives program has a wide variety of incentives to cater for the different motivation levels for each employee. Using the Maslow’s hierarchy of needs and theory of motivation, human resource managers should aim to ensure that the physiological needs of each employee are catered for before progressing to the complex to the more complicated psychological needs. The manager should provide job security prior to providing job satisfaction. In this way, the employee will be more comfortable at the work leading to an increase in his/her productivity.
Furthermore, whilst it still remains unknown which is the best incentive program, more and more organizations are implementing the two in tandem to ensure no employee is left out. Human resource management scholars should also conduct more research on this particular topic and come up with more literature and empirical findings that can used for further analysis and making informed decisions. This will ensure organizations continue to enjoy highly motivated employees and improve on the overall effectiveness and efficiency of its resources.
References
Armstrong, M. & Armstrong, M. (2011). Armstrong's Handbook of Strategic Human Resource Management. London: Kogan Page.
Nelson, B. (1999). Incentives for All Generations. Inc.com. Retrieved from http://www.inc.com/articles/1999/02/16431.html
