Pros and Cons of Monetary Incentives

money-1548322_640 Monetary Incentives (Bonus schemes) are typically used as a mechanism to maximise productivity and efficiency by creating a motivation or goal for employees. Put simply, a monetary bonus can be a simple mechanism to motivate and influence positive employee behaviour (that said, there can also be pitfalls). Below we examine some of the pros and cons of monetary based bonuses.

Pros to Using Monetary Incentives to Motivate Employees

  1. Improvement of employee morale and staff retention levels
  2. Proven mechanism for boosting short term productivity
  3. Motivation to reduce problematic employee behaviours
  4. Compensation mechanism for top performers
  5. An equitable payment system for employees, i.e. extra effort = extra money
  6. An effective tool to attract top talent in the recruitment process
  7. May provide employees with an element of control over their income

Cons to Using Monetary Incentives to Motivate Employees

  1. If used continually, a view may be created that they are an entitlement
  2. Risk of unintentional consequences. For example, if a sales rep’s bonus is solely based on revenue and not profitability, goods/services could be sold below target gross margin.
  3. Risk of de-motivating employees (for example where bonus is paid to one employee but not another)
  4. Cost of implementation: resources are required to set up and track incentive programs
  5. Short term focus: Monetary schemes can become very short term in their focus. Long term attitudes and behaviour may be more effectively addressed via non-monetary incentive schemes.

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