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Financial Rewards for Employees: Definition & Types

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  • 0:01 Financial Rewards for…
  • 1:50 Types
  • 3:25 Employment Package
  • 3:50 Lesson Summary
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Lesson Transcript
Instructor: Paul Mckinney

Paul has been in higher education for 17 years. He has a master's degree and is earning his PhD in Community College Leadership.

For most companies, people are the biggest asset. Motivated employees help the company achieve its mission and goals, and one way to motivate employees is through financial rewards. Let's discuss this method of motivation further in this lesson.

Financial Rewards for Employees

Employees receive financial payment from employers in the form of a salary or commission. This payment is expected as a result of the work the individual was hired to complete. In addition to regular compensation, financial rewards are monetary incentives that an employee earns as a result of good performance. These rewards are aligned with organizational goals. When an employee helps an organization in the achievement of its goals, a reward often follows. All financial rewards are extrinsic. Extrinsic motivation is based on tangible rewards, such as pay raises, bonuses, and paid time off.

Let's take a look at an example: Bailey Jones works as a salesperson for a new car dealership called Star Motors. The managers at Star Motors have determined that their newest car, the V300, is not selling well. The managers meet with Bailey and the rest of the sales team to announce that they would pay each salesperson an additional $50 for each new V300 he or she sold. This is a perfect example of a financial reward that is extrinsic. Bailey is going to receive an additional $50 for each new V300 he sells while helping the company meet its sales goals.

A financial reward is based on consideration of cost versus benefits. Therefore, in the car dealership example, the managers at Star Motors needed to determine what amount they could afford to reward their salespeople with for each V300 sold. The managers could not give too large of a reward or they would not achieve the company's goal of making a profit from each sale. However, in order to motivate the sales team, the reward could also not be so small that it is not worth the effort of the employees.

Types of Financial Rewards

There are many different types of financial rewards a company can offer its employees. Pay increases and bonuses are a great way to reward employees. A pay increase is a raise in one's salary or hourly rate of pay. A bonus is a monetary payment given to an employee above his or her salary or pay rate. However, there are many other ways to financially reward an employee. Some of those rewards include:

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