Difference between Incentives and Compensation

Dictionary Meanings of the term Compensation and Incentives

Compensation : Something, typically money, awarded to someone as a recompense for loss, injury, or suffering.

Incentive : A thing that motivates or encourages one to do something: "incentive to conserve".

In the Nonprofit Economy what we have is a concept of Compensation. In Nonprofit Economy we do not have the concept of incentives and particularly the monetary Incentives. Money is not supposed to be used as an incentive to motivate people in the Nonprofit Economy because it is not a proper motivation for doing your job.

Let us try to understand the meaning of monetary incentives and compensation by understanding the difference between the two terms.

People are provided compensation in order to balance the inequalities in the relationship. Even though we have compensation in the Nonprofit Economy but doing your job with the expectation of compensation is again not good ethics because if you live this way you will never really grow up.

Maturity levels, competence of a person is not a criterion for deciding how much compensation a person gets, the compensation is there to balance the inequalities in the relationship and is proportional to the suffering that the person goes through while doing its job. The suffering could be a physical suffering or an emotional suffering.

A job that does not encompass any physical suffering or emotional suffering would have lower compensation even if that job requires higher levels of maturity levels.

Expectation of Incentives is an outcome when people are focused on personal gains. There are no ethical limits for the incentives. When people are focused on incentives they do not care about the boundaries and ethics. Because there are no ethical boundaries and limits on how much incentive a person is supposed to get. People who are focused on monetary incentives and personal gains tend to manipulate the situation and do not bother even fooling other people and taking advantage of their physical weakness, emotional weakness and intellectual weakness in order to maximize the incentives and profits.

When people are doing their job with the expectation of monetary incentives they often end up crossing the ethical boundaries and end up taking much more than what they deserve.

Nature provides many facilities to the human beings. The trees provide you shade, they purify the air, regulate the temperature and make it more comfortable.

We can see that nature provides you so many facilities but we can also see that Nature does not ask you to pay anything for these facilities. Nature does not ask you for any payments or any monetary incentive for providing you all the facilities that it provides you. Our parents and family members do not ask any incentive for taking care of your needs. And you can see the difference between your home, family and friends and the rest of the economy.

About Nonprofit Economy

What can we learn from Nature, our parents and teachers? Doing your job with the expectation of monetary incentives (or anything else in return) is not good ethics. It is not a truthful behavior.

Therefore in order to bring people closer to the truthful behavior in the Nonprofit Economy we encourage people to do their jobs as a part of their responsibility in the society without any expectation of monetary incentives or anything else in return. There are two kinds of Earnings in the Nonprofit Economy.

  • Resource Earnings and
  • Services Compensation

Total individual Earnings = Resource earnings + Services Compensation.
Let us discuss each of them.

Resource Earnings

In the economy raw resources are scarce and therefore raw resources have a cost. Raw resources are provided to us by the Nature. So according the truthful ethics the Nature is someone who actually deserves the cost of raw resources - the money that is generated by selling the raw resources at their origins. But Nature is not asking for the money from human beings. Therefore In this situation for the sake of simplicity we consider that citizens of the state deserve this money. This money is distributed to the citizens by dividing it equally among them. We call it the Resource Earnings.

Services Compensation

Services compensation is what you get as compensation for doing your job in the economy.
Total Individual Earnings = Services compensation + Resource Earnings.

Ethical Limit on Services Compensation

In order to encourage people to do their job without any expectation of monetary incentives In the Nonprofit Economy we have an ethical limit on the Services Earnings. Ethical limit is a limit that is accepted by the majority of the citizens in the Nonprofit Economy and this ethical limit is not enforced with the legislative restrictions. It is up to a person/individual to choose for himself whether he desires to live with those ethical guidelines or not. It is legal in the Nonprofit Economy to not accept to live with the ethical limit when you are being honest about it.

At this point there are many questions that would naturally arise in your mind particularly about the issue of sustainability of the Nonprofit Economy.

Ethical limit on Services earnings is the maximum Services earnings that the individual accepts to have in the Nonprofit Economy.
In the nonprofit Economy,

Total individual earnings = Services Earnings + Resource earnings.

Consider an example: If the ethical limit on the services earnings is 50% for a Nonprofit Economy. In this case the individual accepts to limit his services earnings and not to exceed them more than 50% of the total earnings.

In the Nonprofit Economy citizens choose for themselves what ethical limit they want for themselves. If majority of the people feel that 50% is the appropriate ethical limit for them in this case the 50% would be the ethical limit for that state.

Different instances of the Nonprofit Economy can have different values of the ethical limit. The ethical limit is based on the various factors like maturity levels of the people, the limit people are comfortable with and other such factors.

In the Nonprofit Economy the Resource Earnings act as a means of financial security. Therefore people are not dependent on their jobs for the financial security.