Incentives

An incentive (synonym: stimulus) is any aspect of a situation perceived by an individual that activates existing motives and motivation, offers potential rewards, and ultimately triggers behavior—see the performance determinant concept. A critical condition for this process is the compatibility between perceived incentives and individual motives.

Incentives that stimulate behavior can be categorized in several key ways:

1. By Object: Tangible vs. Intangible Incentives

• Tangible incentives (also known as financial or monetary incentives) include all rewards provided by a company that have measurable economic value. These go beyond direct compensation and may include benefits such as job security, welfare systems, company housing, loan support, and more.

• Intangible incentives, by contrast, are not directly quantifiable. These include:

  • Work-related incentives (e.g., autonomy, task identity, challenge, meaningfulness)

  • Social incentives (e.g., support and behavior of colleagues or supervisors)

  • Contextual incentives from the internal or external environment (e.g., company image, reputation, prestige)

Tangible incentives often carry intangible value as well, serving as symbols of recognition or enhancing one’s external image in the eyes of others.

2. By Source: Intrinsic vs. Extrinsic Incentives

• Extrinsic incentives originate from the environment and are relatively independent of the activity itself. These can be material or immaterial and are typically provided in exchange for behavior that aligns with organizational goals.

• Intrinsic incentives arise from the activity itself and are rooted in personal experiences—such as success, failure, mastery, or engagement—when corresponding motives are present.

3. By Target Group or Level of Contact

• Individual incentives: Tailored to the personal needs or motives of an employee

• Group-based incentives: Designed for teams or departments

• Company-wide incentives: Structured to affect the entire organization

Incentives may also be classified by their managerial purpose or strategic alignment, such as:

• Operational vs. strategic incentives

• Incentives for change vs. innovation

• Targeted incentives for managers, administrative staff, or specific functional groups

While the possibilities for differentiation are extensive, the first three classification types—object, source, and contact level—have received the most attention in research and practice.