4 Steps to Design Effective Non-Monetary Incentives

A guide in 4 steps to design effective non-monetary incentives

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What are non-monetary incentives, and how can you use it to attract and retain the best employees? In this guide we will explore the various non-monetary incentives, see how they can be part of a compensation package, and how to use them effectively.

What are Non-Monetary Incentives?

Incentives when designing jobs

Designing job means defining all the characteristics of a job. A company will typically want to do job design when they are looking for a new person to hire with new responsibilities than those people already in the company have. You design jobs for a position, not for an individual person (i.e., for “Software Developer” rather than for “John Doe”).

Designing jobs means considering what each job will consist of: what are the tasks, which of those are essentials and which one are additional, what are the qualifications needed to succeed in a job, a salary range and compensation structure, and of course non-monetary incentives.

Before we dive into non-monetary incentives, remember that they should be part of the job design process, and not an afterthought. The goal of job design is to make each job successful. Hence, non-monetary incentives should contribute making each job successful. That is, making it more productive, more effective, have the employee in that role more motivated, and so on.

Intrinsic vs. Extrinsic Motivation

Just before we go even deeper into non-monetary incentives, it is worth remembering intrinsic and extrinsic motivation – two concepts you might be familiar with if you studied HR or management.

Motivation is what keeps you engaged in your job, what keeps you wanting to do it. It can be either intrinsic or extrinsic, and you will have a combination of both for any job. Intrinsic motivation is embedded in the job itself; it is the fulfillment you get by doing the job itself. You may be motivated because your job has an impact, it helps people, it contributes to a greater cause, because you are free to decide how to approach your job, because it is fun to do, and so on. It is something related on what you actually do.

Extrinsic motivation is external to what you do, it is about the extra treats that you are given to do the job. A big part of this can be a generous salary, praise from your manager, employee of the month award, having a company car and so on. Those are all items related to your job, but they are not exactly what you do. They are external, they are extrinsic.

Non-monetary incentives are an extrinsic motivation. It does not mean they are less effective, yet knowing this gives you the framework you need to evaluate them better.

What are Non-Monetary Incentives?

Non-monetary incentives are additional benefits the company give to you for performing your job, that are not direct cash transfer. Here we are not saying non-monetary incentives are free, they can be costly indeed, we just mean that the company is not wiring cash to the employee.

Non-monetary incentives can increase productivity
Non-monetary incentives can increase productivity.

Some can be free, such as a praise from your manager for something you did, others can be relatively cheap such as a lunch out with the team to celebrate completing a project, others can be more expensive such as giving a company car to an employee.

Below, some common examples of non-monetary incentives.

  • Praise from your manager in private
  • Shout out of your big accomplishment by gathering the whole team
  • Bringing fine bakery/cake to the office to celebrate meeting a deadline
  • Celebrate a team success with a lunch in a nice restaurant
  • Offering free or discounted company products or merchandise
  • Free cafeteria or company restaurant with healthy product
  • Gym at the office
  • Giving a company car to an employee, let him use also for personal activities
  • Charity contribution scheme (e.g., the employee donates 1$ to a charity, the company puts another dollar to the same charity)

Those are just some of the most common examples of non-monetary incentives. By seeing these, you should be able to identify the general pattern and create your own incentives that better suit your needs. How to go about non-monetary incentives, how to make them effective? This is the topic of the next section.

How to Use Non-Monetary Incentives Effectively?

If you wanted to know how to use non-monetary incentives effectively, you are in the right place. Here we will see how to pick, select, and implement non-monetary incentives to make your employee more productive, effective, and engagement. Not only that, but we will also see how to use them to attract talent.

What Should Be the Goals of Non-Monetary Incentives?

When I started working as an individual contributor in the average large company, I thought “If I had a company, I would give complimentary coffee to everyone as well as free snacks. And it should also have a gym in the building”. All these were good intentions of course, but they were a naïve thought that missed the point. This is not because they are bad ideas: many companies implement similar policies successfully. The problem is the approach to non-monetary incentives that I had, and sadly most people tend to have. Don’t worry, it is easy to fix!

When thinking about non-monetary incentives, start to think about what is the goal? What are we trying to achieve with these non-monetary incentives? As we discussed before, we want the job to be effective, and as part of our job-design process we include non-monetary incentives to fulfill that goal. Broadly speaking, non-monetary incentives serve two purposes:

  • Engagement – they maintain the employee fulfilled, relieve him from stress, and make him feel “belonging” to the company
  • Attract talent – they signal what the company is like and attract people who would feel good working there

Each non-monetary incentive should fulfill both purposes. So, the first things to ask yourself are: what would keep people fulfilled and belonging in their job and in this company? What would interest people to make them want to work here? Ask these two questions, and then decide which non-monetary incentives to implement accordingly.

Keeping Employees Engaged with Non-Monetary Incentives

One of the two main goals you can achieve through non-monetary incentives is keeping your employees engaged. That is, fulfilled and committed to the work they do. To be fair, a good chunk of engagement comes from the nature of the work itself, so you cannot substitute this exclusively with non-monetary incentives. However, non-monetary incentives can help make any “average” job fulfilling, rewarding and great.

For this, you have to use non-monetary incentives that foster employee autonomy, strengthen bonds with team members, and show the impact of the work. For example, you could:

  • Have a customer come speak about their issue to people who normally don’t interact with customers
  • Arrange a party or dinner with the team to celebrate an accomplishment
  • Organize an off-site retreat to build stronger social bonds between coworkers
  • Praise an employee for her good work (the praise must be specific about something and immediate after the fact to be effective and don’t sound just like fake flattery)
  • A small gift meaningful to the employee (for example, if the employee really likes chocolate, a small box of chocolate can be meaningful because it shows the company knows him well)
  • Possibility to buy company shares at a discount

In general, everything that makes feel the employee appreciated is great to keep engagement levels high. Of course, what makes people feel engaged depends on each person’s preference as well as different industries and nature of the job. Some of these suggestions will work well in some industries, others in different sectors.

Make Employee Comfortable through Non-Monetary Incentives

Comfort at work is not really engagement, but it creates a good work environment. If the environment is good, people are less willing to change company or swap jobs because the marginal improvement they would get is small. They think “I am treated so good here after all”. If retention is one of your main concerns, this part is worth addressing.

Here, start to think about what employee wants and what to they enjoy. If they are people who like to be in shape and follow a healthy life, having a company gym and a cafeteria with free healthy options is a great solution. If they value convenience, offering work-from-home arrangements, flexibility and ample time off can be a way to go. If people are interested in well being and lifestyle in general, having a space to meditate or sleep at the office, having yoga classes or free access to a therapist can be good options as well.

Non-monetary incentives can cater to the well being of employees, making their days great
Non-monetary incentives contribute significantly to employee well being when designed right.

In general, this area of non-monetary incentives caters toward the well being of the employees, but you have to think for your employees (or for the type of employees you want) what well being feels like. If you design a well-being program for a type of person you want to work for your company, eventually people of that time will come flocking to your company, even if you don’t have many right now. Instead, people who are not the right fit will search for what they like elsewhere.

To recap, here are some non-monetary incentives for the well-being of employees. Which ones to use depend on what your employees like:

  • Having a company gym
  • Cafeteria with healthy/special food options, possibly free
  • Work-from-home arrangement (smart working)
  • Flexible time, generous time off
  • Personal trainer, yoga classes, therapist for free
  • Meditation room at the office
  • A place to sleep at the office, such as sleeping pods
  • A game room at the office, with cards, videogames, pool etc. depending on employee preferences

Attracting the Right People with Non-Monetary Incentives

No matter what the work is, you want people who are passionate and committed to their work in any role. Not surprisingly, non-monetary incentives can help attract the right people for the right job, potentially even scaring away other not-so-good candidates. How is this possible? A few examples will clarify.

Company car for a salesperson. This is a classic non-monetary incentive that even the most traditional companies use, often unconscious of it being an incentive. Simply put, salespeople need to visit customers, and so they are given a car by the company, and they are generally allowed to use the car for personal reasons as well.

This incentive attracts people who don’t mind, and possibly even like, driving around. That kind of person would be the one more likely to enjoy being told to go to a customer who is one hour drive from the office without prior notice. On the other hand, a person who does not want to move a lot will not value this incentive much and will look for other companies that better reflect his value.

Free company products. If you love the products of a company, you would be excited to get them for free. Or the other way around, if you are excited to get a product for free, you love that product, and hence you love that company. So, offering free company products (even temporarily) is a great way to attract people who are passionate about your company. That depends on the nature of the company, but if you sell consumer products you are all set.

For example, REI is a company producing camping and outdoor sports gear. They offer their employees the opportunity to try their products for free for some days: this attract people who like REI’s products and are passionate about outdoor. Since they are passionate about outdoor, they will understand customers well.

REI offers its product for free to their employees as part of an effective non-monetary incentives program
REI offers camping gear like this tent to its employees as part of their non-monetary incentives program.

Degree, MBA, courses. This is probably the most evident example. If the company offers to pay the tuition for the employee to get a degree or MBA, of it the company pays for some courses, it shows it is committed to the development of their people. Not only that, but this will also naturally attract people who like to study, advance their knowledge and most likely their career. If the company is more specific defining which type of degree or course they are willing to finance, this will attract not only people who want to study and learn, but people who are passionate about that specific topic as well.

The Mix of Non-Monetary Incentives

In the end, no single non-monetary incentive will be enough. You will need to prepare a mix of different incentives and consider how they integrate with the rest of the compensation structure (e.g., base salary, stock options etc.).

Here, the approach I recommend is to write down your goals as a company and then the goals for this specific role or job description. What do they need to achieve? What are the skills and personal traits someone needs to succeed? Then, think how this type of person can be attracted.

In the end, non-monetary incentives shouldn’t be an afterthought. They should be designed together with the rest of the pay structure. Sit down, understand how much you can spend on this role, and then define how much of this should go toward cash pay, stock options, and non-monetary incentives.

And, if you are interested in employee performance, your next best read can be this definitive guide to Performance Review.

Picture of Alessandro Maggio

Alessandro Maggio

Project manager, critical-thinker, passionate about networking & coding. I believe that time is the most precious resource we have, and that technology can help us not to waste it. I founded ICTShore.com with the same principle: I share what I learn so that you get value from it faster than I did.
Picture of Alessandro Maggio

Alessandro Maggio

Project manager, critical-thinker, passionate about networking & coding. I believe that time is the most precious resource we have, and that technology can help us not to waste it. I founded ICTShore.com with the same principle: I share what I learn so that you get value from it faster than I did.

Alessandro Maggio