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Concept
Incentive
Summary
In general, incentives are anything that persuade a person to alter their behaviour in the desired manner. It is emphasised that incentives matter by the basic law of economists and the laws of behaviour, which state that higher incentives amount to greater levels of effort and therefore higher levels of performance.
An incentive is a powerful tool to influence certain desired behaviors or action often adopted by governments and businesses.
Incentives can be broadly broken down into two categories: intrinsic incentives and extrinsic incentives. Overall, both types of incentives can be powerful tools often employ to increase effort and higher performance according to the "law of behavior."
Incentives are most studied in the area of personnel economics where economic analysts, such as those who take part in human resources management practices, focus on how firms make employees more motivated, through pay and career concerns, compensation and performance evaluation, to motivate employees and best achieve the firms' desired performance outcomes.
An intrinsic incentive is when a person is motivated to act in a certain way for their own personal satisfaction without seeking any external reward, nor facing any external pressure to perform the task. For instance, a singer who enjoys singing may be intrinsically motivated to spend several hours a day to improve their performance without receiving any recognition or awards from others. Often, intrinsic incentives are useful in increasing one’s empowerment, utility level, and autonomy and can reinforce employees’ work involvement and commitment.
Intrinsic incentives and extrinsic incentives are both important in driving people's behavior. Experts believe that intrinsic incentives are stronger motivators compared to extrinsic incentives as they increase employees’ work engagement and genuine enjoyment of work. However, people's intrinsic motivation tends to decrease when they are offered too many extrinsic rewards. In order to maintain the action, constant incentives have to be provided.
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