What is an incentive? Definition and examples

An incentive is something that encourages people or animals to do something. We use it when we want to stimulate a desired behavior or action. We are more likely to do something if we know there is a reward. A reward is an incentive.

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When the inducement is in the form of money, we call it a financial incentive.

The term inducement, which is a thing that encourages, influences, or persuades somebody to do something, has the same meaning as incentive.

YourArticleLibrary.com has the following definition of the term in the world of business:

“What is incentive? In simple words, it is anything that attracts a worker and stimulates him to work.”

“The incentives can be financial and non-financial. Both types play impor­tant role under different conditions.”

Incentive vs. motivation

These two terms do not have the same meaning. Do not use them interchangeably.


Motivation focuses on the individual’s behavior. With motivation, the person does something because they want to.

Your motivation drives your desire and willingness to do something. A motivated person is enthusiastic. It is an internal phenomenon, i.e., the drive to do something is within us.


With an incentive, we do something because of the reward, not necessarily because we want to. We might not be enthusiastic about it.

If somebody offers me $50,000 if I donate my kidney and I am desperate for money, I might do it. However, I do not do it enthusiastically. The $50,000 is an incentive.

Put simply; motivation is inside us, it is internal, while incentive depends completely on the promise of a reward, something from outside. The inducement is external.

Incentives are not all bad

If something is an incentive, it does not necessarily mean that it is bad. There are also good ones. In fact, some can lead to motivation. Merchandising executives may offer customers special deals, such as 4 for the price of 3, certain discounts, and loyalty points with rewards. These are incentives and customers like them.

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Jeremy Stoppelman (born 1977) is the CEO and co-founder of Yelp. In this quote, we could replace the word ‘incentive’ with ‘reward.’

Profit sharing, which involves giving workers a direct share of a business’ profits, is an incentive plan that usually motivates workers. It also boosts morale, promotes employee loyalty, and improves retention.

Motivation is better for business

In a Market Business News article about motivation, we made the following comment:

“If you want a team of people to work hard and well for you, it is possible to dangle lots of money. In other words, you can use financial incentives and achieve your purpose that way.”

“Workers are more effective if they care about what they do because they believe in it. In other words, because they are motivated.”

Two examples

A donkey

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Let’s imagine a donkey carrying a load. Its owner dangles a carrot in front of it. The donkey will start walking forward because it wants the carrot, i.e., the reward.

Does the donkey like walking? It is keen on walking forward with a load on its back? We don’t know.

What might happen if its owner stopped dangling the carrot in front of it? Most likely, the animal would stop walking forward.

So, are the donkey and carrot an example of motivation or incentive? The answer is undoubtedly ‘incentive.’

Let’s imagine the donkey loves its master, is well fed, healthy, and lives in a comfortable stable in a lovely field. Its master never uses a carrot to make it walk. It enjoys its life and likes walking, even when there is a load on its back. This is an example of motivation.

Training dogs

Incentive for dog image 4939291Some trainers use incentives to teach their dogs to sit, stay, give their paw, etc. Others don’t – they prefer to teach their pets to do things because they want to rather than for a reward. In other words, some dog trainers use incentives while others rely on motivation.

There is another way to get people and animals to do things – with a stick. In other words, using the threat of pain. Most people would agree that incentives are better than sticks, but motivation is the best.