Financial incentives
Financial incentives refer to revenue-related methods used by employers to promote improved levels of performance, productivity, and accomplishment with respect to set objectives, such as bonuses, commissions, profit-sharing, or performance-related pay. The use of financial incentives is included in an organization’s overall compensation plan for the purpose of motivating individuals to perform more effectively and efficiently, achieving better results, and aligning individual performance with achieving the objectives of the organization.
Important Features of Financial Incentives
- Motivates employees to reach their full potential and meet goals.
- Rewards linked to performance drive productivity.
- Attracts and retains employees by providing competitive salaries.
- Creates a culture of performance in companies.
- Establishes a connection between employee (performance) and company (success) objectives.
Legal & Regulatory Considerations
Compensation policies and specific statutory laws can dictate whether financial incentives qualify.
Applicable laws include, but are not limited to:
- The Payment of Bonuses Act 1965 regulates the obligation for statutory benefits of employees who qualify for them.
- The Income Tax Act (1961) provides that employees receive bonuses and incentives as taxable income.
Organizations often utilise their internal compensation and incentive policies to manage financial incentives.
