Impact of Financial Rewards on Employee Motivation.


Every manager has the desire to keep their employees highly motivated, but only a few get success. In developing approaches to motivate employees, managers should focus on financial rewards because employee motivation is the key to achieve organizational goals. Lack of motivation and recognition can turn employee at the dissatisfactory and poor-performing stage. Hence, this dissatisfaction crosses to a high turnover ratio of the employees. But the numerous opportunities, adequate motivation, and financial rewards lead to good productivity, job satisfaction, and employee retention.

Financial rewards are directly related to performance, which has a robust impact on employee motivation. According to Frederick Herzberg’s motivation-hygiene theory, two factors (hygiene and motivating factor) have a strong influence on employee motivation. The hygiene factors of this theory include salary & benefits, working environment, administration policies, and the motivation factors include recognition, achievements, personal growth, responsibility, and the work itself. These factors together lead to job satisfaction of employees.

An adequate recognition and compensation system can motivate the employees and intensify their productivity. Certainly, the financial rewards ranked top among all factors of employee motivation and  Employee Engagement because monetary benefits allow employees to accomplish their basic needs along with the need for belongingness and power. Therefore, financial rewards enhance the confidence and morale of the employee.

Financial Rewards:

Employee Motivation

Financial rewards are the monetary benefits offered to the employees for their excellent performance and productive work. These rewards are directly associated with organizational goals. When employees support their organization to fulfill organizational goals, then these rewards often paid to the employees. Financial rewards include remuneration or pay, allowances, bonus, wages, fringe benefits, profit sharing, retirement benefits or pension, prerequisites, etc.

  • Remuneration or Pay:  Remuneration or Pay is a primary financial reward offered to every employee for their routine work and employment. Money is a top-ranking factor of motivation because people need money to satisfy the fundamental necessities of their life. Therefore, salary or pay is the most significant financial reward for an employee
  • Allowances: Allowances are the types of monetary rewards, which have paid to the employees for a specific purpose or task. It includes HRA, traveling allowance, medical allowance, child education, dearness allowance, and so on. Commonly, allowances have paid with pay or salary.
  • Bonus: Bonus is a reward for the employees when they give more than 100% of their job or reach a certain level to complete a project or task. For example, an employee gets the bonus for overtime when he works more than his shift time.
  • Wages: Wages are the monetary or financial rewards paid to the employees for their work done as per hourly or daily base rate. Wages have paid to increase the productivity of the work at an individual or group level. Wages rate has based on the actual output and assigned targets.
  • Fringe Benefits: Fringe benefits are the special kind of financial reward, which is not a part of employee salary and nor include in his taxable income. For example, a company car, sick pay, free meal, educational assistance, vacations with pay, private healthcare, etc. are the type of fringe benefits. Fringe benefits are additional perks that organizations give to their employees. In reality, fringe benefits play a vital role in employee motivation because it coerces the employees to give extra efforts to earn more rewards as much as possible.
  • Profit-Sharing: Companies distribute a specific share of the profit with their employees based on the position they are holding in the company. It is one of the best ways to reward employees. Because profit-sharing financial reward helps to achieve organizational goals and it motivates the employee to improve their performance and to contribute their best effort for increasing the profits. The more profit an organization earns will result in more profit-sharing financial rewards.
  • Retirement & Pension Benefits: A Retirement benefit is a deferred income that a person gets at the time of retirement from their job or services. Different types of retirement benefits like pension, provident fund, gratuity, leave encashment, etc. have paid to employees when they are serving in the organization. The main motive of these benefits is to offer a feeling of independence and secure living in the future. Pension benefits enable employees to relish a stress-free life after fulfillment of their job ownership. Retirement benefits motivate the employees to work and stay in an organization until retirement because if employees leave the organization before retirement, they may not eligible for the retirement benefits. These benefits are the best for employee retention.

Impact of Financial Rewards on Employee Motivation :

Financial rewards play a vital role and leave a very strong impact on employee motivation. The significance of monetary rewards on motivation is very high. If a company gives more incentive to employees for their work, then the employees get more motivated for their work. Financial rewards are the monetary benefits apart from the basic salary that employees earn on their performance. Many employees consider these benefits as an extra source of income. Therefore, such employees get self-motivated to receive as much as incentives to increase overall earnings and give their best efforts for good productive work. In return, the company appreciates their work and compensated with the best suitable monetary rewards.

Financial rewards like salary, bonus, wages, pension, allowances, and fringe benefits are helpful to meet the safety, social, and esteem needs of the person along with the primary necessities of life. It is a sign of success and achievement. The organization believes that a general compensation with a financial rewards system benefits positively influence the motivation of employees in doing their work. It increases employee participation in work and employee motivation as well as helps in achieving organizational goals.


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