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Table of Contents

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Employee incentives inspire, encourage, and motivate. However, incentives aren’t one size fits all. What makes a comprehensive incentive program versus one that blows up in our face? And how can we tell the difference?

What Are Employee Incentives?

In·cen·tive. /inˈsen(t)iv/. Noun.

  • A thing that motivates or encourages one to do something.
  • A payment or concession to stimulate greater output or investment.

For an employee, incentives are specific strategies implemented by employers to motivate increased productivity, accomplish specific goals, attract more applicants for a position or improve retention of current talent. They can be incentive programs such as compensation programs (ex. sale-based commission), sign-on bonuses, and spot awards to name a few.

Should a Company Offer Employee Incentives?

Incentives are not required. However, if properly leveraged and implemented strategically, incentives have been shown to increase job satisfaction, organizational commitment and trust in management.

The Benefits of Employee Incentives

  • Gives employees a sense of control. Given that the incentive is tied to a measurable goal, employees gain an increased sense of control over their output and what to expect from it. With an incentive gained upon task achievement, they hold the reins on how much time and energy they pour into it and when they receive the reward. It may seem small, but increased feelings of control improve overall feelings of security and are proven to reduce anxiety.
  • Ups productivity and improves performance. This study found that “If selected, implemented, and monitored correctly, incentive programs — with awards in the form of money or tangible awards — increase performance by an average of 22 percent. Team incentives can increase performance by as much as 44 percent.”
  • Increases organizational satisfaction and trust. Certain incentives (specifically performance-based pay) have been proven to increase a worker’s commitment to and trust in their company. This is a two-edged sword however. If an incentive is not properly executed, the results can flip pretty dramatically.
  • Reduces turnover. Appreciation and feedback from management is one of the major factors that prevents employees from looking at the door, especially recognition tied to a specific accomplishment. Incentives do exactly that while tying additional value to drive the point home.

Problems With Employee Incentives

  • Advance research and planning. Determining what incentives will motivate your employees is not a step to take lightly. There is flexibility when deciding to utilize individual, team, or company-wide incentives, such as using cash or non-cash incentives, what actions or goals to reward, etc. Research what other organizations in similar industries of comparable size and structure utilized successfully.
  • Upkeep. Performance tracking and evaluation are key components to finding what incentives are effective. Once decisions are made and incentives implemented, track performance to see if it helped your employees go above and beyond. Send out surveys regarding loyalty and work satisfaction and don’t hesitate to try something new if the incentive isn’t fitting the bill.
  • Entitlement. Sometimes incentives can turn into entitlement, such as in annual holidays or end-of-year bonuses. These bonuses aren’t typically tied to an action or achievement and therefore employees may not know how or what they’re working toward. They do not increase productivity since these bonuses can become something that is simply expected as long as they do the bare minimum. Avoid this by not tying incentives to specific times or events.
  • Can backfire. Incentive plans can also backfire. Piggybacking off the holiday or year-end bonuses example, what if an employee doesn’t get a bonus that year? Since the incentive is an annual expectation rather than an achievable reward, there’s no action they can take to earn it or not. This can make the employee feel robbed and upset, lowering job satisfaction and company loyalty. Likewise, not all incentives motivate all employees. Having a team-oriented incentive can cause solo workers to feel overlooked or lower morale if incentives aren’t inclusive, clear-cut, or motivating.

Types of Employee Incentives

The best employee incentive programs are ones that leverage many different forms. Incentives can be targeted toward individuals to help direct their career path, team-based to help motivate meeting certain goals, or company-wide. Incentives can be broken down into two main categories: cash and non-cash.

Cash Incentives

  • Incentive compensation programs. This incentive is when the amount the employee is paid is directly linked to the results of the employee’s labor. The most direct example of this would be sales commissions.
  • Individual/team bonuses. Tied to sales quotas, production goals or completing projects on time, cash bonuses are typically paid out as a part of the employee’s next pay cycle.
  • Pay raises. These are pay raises implemented for meeting a specific goal. The amount is typically determined by the size of the goal met in light of the tenure of the worker.
  • Contests with cash prizes. These incentives encourage friendly competition between teams or individuals. To keep the current progress up to date, post it somewhere bold and visible. It can also improve your results to include mini cash prizes for those who accomplish “stair-step” goals.

Non-Cash Incentives

  • Recognition. Both public and private praise can be extremely impactful if leveraged properly. When giving praise, make sure it is attached to specific instances of the employee going above and beyond or meeting a goal. Even though this can be free, it doesn’t mean that it’s not important. In fact, this study found that recognition for good work is more motivating than rewards or gifts.
  • Wall of fame. In the same vein as public recognition, try putting up a wall of fame—similar to the “employee of the month” bulletin boards often found in grocery stores. Create your own categories that jibe with company values and goals, and put up photos and names to recognize great work and inspire the rest of the company.
  • Educational and training. This type of incentive offers the employee a break from day-to-day work and the opportunity to grow. Not only is it a massive confidence booster for the employee, but education and training are also a direct investment back into the company as it yields greater skills. If you provide a few choices for courses or certifications, this puts the employee in the driver’s seat of their own career advancement and empowers them to be more productive and efficient. This also sends the message that the organization values and invests in its workers.
  • Greater responsibility. For employees who are motivated and go beyond what is required, greater responsibility can be an impactful motivator. When an employee can contribute more, they will naturally perform better. Consider giving them more say on departmental decisions, more opportunities to head up larger projects, or putting them at the head of a team goal.
  • PTO and paid vacations. Everyone needs time off and having designated time away contributes to lowering the risk of burnout.
  • Free food. When employees hit a specific goal, offer a free lunch for the whole team. It feels great when someone else is footing the bill for a satisfying and delicious meal, encouraging employees to work hard for the fun perk they can share together. A work incentive given for a group goal shows that your company values work toward that goal and encourages teamwork.
  • Local memberships. Provide memberships to local establishments, such as the gym or recreation center, family fun or entertainment centers, museums, ski resorts, and amusement parks. This promotes a company culture of play and local engagement and encourages loyalty and retention. Make sure to choose services that your employees are interested in—a study by SheerID found that employees were most likely to use entertainment, restaurant, electronics, and subscription-based employee discounts.

How to Provide Employee Incentives

Not every incentive resonates with every employee. So be sure to do your homework to ensure the success of the program. The actual implementation and presentation to your workers is just as important as doing your research. How the incentive is communicated can make or break the program.

Step 1: Research What Motivates Your Employees

Surveys, one-on-one discussions, team meetings, anonymous suggestion forums, and brainstorming sessions are a few ways to determine what incentives your employees might find appealing. If you’re designing an incentive program around different personalities, having an understanding of them can be invaluable to determining a productive reward system.

Step 2: Plan and Schedule

Be strategic when planning your incentives. Have the reward directly attached to an attainable, measurable goal. Another crucial aspect is the time of implementation. Don’t put it too close to another major event unless it can be directly related to the event. Otherwise, it can lose its impact. Likewise, don’t make an incentive effective during departmental changes, company changes or changes to management or you risk the incentive getting pushed to the back burner.

Step 3: Communicate, Educate and Create the “Want”

Have multiple lines of communication about the incentive to ensure a clear understanding of the expectation and reward such as announcing it during a meeting, sending out an email, and including the details on the company’s online message board. In order to create excitement around the incentive, create a largely visible leader board to track everyone’s progress, have a countdown to the start and end date, and tie it to a fun event.

Step 4: Follow Through

Don’t promise what you can’t deliver. When possible, underpromise so you can over-deliver rewards to your employees. This shows they are valued and their effort doesn’t go unnoticed. As the company follows through, it builds internal trust and rapport between workers and their organization.

Step 5: Track, Evaluate, and Adjust

Keep a record of production before, during, and after the incentive. Monitor how effective incentives are. Make adjustments as needed and push in the direction of results. If you see improved numbers during a team vs. team contest, great! Continue offering friendly competition and team incentives. The time invested in research, analysis, and adjustment will translate to better returns for incentives.

Final Tips

Remember to have fun with it! Ensure success with these last pointers.

Tip 1: Avoid Ambiguity

Make it crystal clear what measurable outcome results in the reward. Avoid having an incentive connected to a certain time of year or event. This can be confusing to the employees as it is unclear what is expected in order to receive the reward. Layout the expectations with tangible numbers and clearly designate the reward.

Tip 2: Encourage Friendly Competition (and Collaboration)

Team versus team competitions, interdepartmental joint goals, and leaderboards are some ways to encourage collaboration and friendly competition. As we have a tendency to compare ourselves to others, this is a psychologically proven motivator.

Tip 3: Provide Recognition

Make incentives personalized and meaningful. They don’t have to be a big to-do. Sometimes the most effective recognition can be a thoughtful note. Ensure that the recognition is communicated in the individual employee’s “language” for maximum impact. For example, is their personality bubbly and excitable? Get on their level and use strong emotional language, an upbeat tone and deliver it with a smile. More detail-oriented? Point out the specific segment of that report where they really hit the nail on the head. Not all forms of recognition motivate all personalities so be sure to do your homework and know what delivery will be best received by the individual.

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Questions You’ve Asked Us About Employee Incentives

No. This is not to say that benefits can’t be incentivized. Benefits are anything above and beyond regular monetary wages simply for being an employee whereas incentives are monetary or non-monetary rewards tied to a specific goal or amount of tenure.
This is a program utilizing goals and rewards to motivate greater employee output. Comprehensive programs leverage a collection of different types of incentives to reward individuals, teams and the company as a whole for expectations that are met or exceeded.

Kayla is the Chief Innovation Officer at Hero Culture, where the passion is to create company cultures of retention using the power of personality.

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