For years, money has been used as a tool to lure as well as retain talent. There is a general belief that financial incentives, to put it very simply, keep employees happy and boost productivity. However, this age-old theory has come under the knife with several studies and surveys having proven otherwise.

The effect of financial incentives on an employee would be directly dependent on what the employee seeks to acquire from the job, his motive. It has been observed that, in many cases, money does keep many employees rooted to their jobs, even if the jobs don’t interest them otherwise. However, research has proven beyond doubt that, after a certain level, financial incentives, though an important and effective motivator, yields long-term results only if used effectively in conjunction with non-financial incentives. When other demands and expectations of the employee have been met, it is then that money becomes important. Also, financial incentives do not guarantee better performance or productivity.

It has been observed that employees have a short memory span when it comes to acknowledging financial incentives, for example, raises, bonuses etc. In fact, a raise beneath the expectation of an employee has been found to do more harm than good. On the contrary, ‘Recognition’ and ‘Performance-based reward’ have been noted to go a long way to maintain good performance. Recognition of the effort and superior performance of an employee and its acknowledgement, and the consequent respect and attention, enhance the employee’s status in the workplace and boosts his confidence and drive to accomplishment and growth. These feelings are more long lasting than the effects of financial incentives.

Also, coaching, mentoring, feedback and an effective skills management system have exhibited direct results. Also, seminars and interactive sessions by successful professionals in the field evoke interest in employees. Setting of realistic as well as challenging roles and responsibilities by the employer has also been observed to boost and maintain productivity.