How to Design an Effective Employee Incentive Plan
Are traditional financial rewards enough to motivate your team, or could the secret to unlocking peak performance lie in understanding the deeper, social value of non-cash incentives?
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Human behavior is rooted in intrinsic and extrinsic motivation. These two fundamental factors influence people’s choices and determine their level of engagement and satisfaction. While the first comes from a self-driven, internal desire to engage in an activity, extrinsic motivation uses external rewards to influence behaviors.
In the workplace, this takes the form of employee incentives.
To understand the scope of their transformative potential, this Shortlister article takes an in-depth look into the topic, defining what incentives are, how they benefit employees and employers, and what the most common examples are in the workplace.
What are Incentives?
So, what are incentives exactly?
Incentives reinforce desired human behavior. Whether through a physical item or a non-tangible reward, they aim to persuade individuals or groups to do something or act a certain way.
Although a practice as old as time, it wasn’t until the early to mid-20th century that psychologists started exploring the incentive motivation theory.
The theory suggests that anticipating rewards or avoiding punishment drives individuals to exhibit a specific behavior.
Over the decades, this also led to a better understanding of incentivizing worker behaviors, pushing employers to align incentives with their employees’ core values to enhance motivation and productivity.
However, since the workforce is such a diverse group of ideas, desires, and personalities, recognizing the different types of incentives becomes paramount.
Types of Incentives
The complexity of human behavior means individuals can be inspired, motivated, and influenced by countless factors. That makes incentives a broad and intricate category.
Nevertheless, one classification remains consistent across different contexts, including the workplace – categorizing incentives based on their financial nature.
- Monetary incentives provide tangible rewards to individuals in exchange for specific actions, behaviors, or achievements. They can take the form of cash bonuses, discounts, vouchers, coupons, or points and often go hand in hand with performance metrics, targets, or specific actions expected by the one who provides these incentives.
- Non-monetary incentives are a much broader category, especially in the workplace, since they offer values other than financial, like recognition, achievement, personal development, etc. However, organizations often use them with monetary incentives to provide a more comprehensive and effective reward system.
Overall, this simple classification helps employers design incentive programs catering to different aspects of employee motivation, considering how financial and non-financial factors contribute to job satisfaction and performance.
What are Employee Incentives?
Answering what incentives are is just one aspect of understanding their specific role in the workplace.
In a corporate context, employee incentives are rewards or benefits employers offer to motivate and encourage the workforce to perform better, achieve organizational goals, and contribute positively to the workplace.
They can also inspire collaboration, boost morale, and improve employee retention.
The multitude of benefits they bring to the workplace explains why U.S. companies spend over $100 billion annually on incentives. A study by the Incentive Research Foundation (IRF) shows that, of those, $27 billion went to merchandise and travel incentives.
With cash incentives included, the total number exceeded $115 billion.
However, the study also indicates that a long-term approach outperforms short-term incentives.
Thus, companies are turning to a structured approach to make them more sustainable in the long term. In doing so, the definition of employee incentives extends from traditional forms of compensation to innovative programs that cover a wide range of rewards, recognition, and opportunities.
What are Employee Incentives Programs?
Employee incentive programs are structured workplace initiatives that employers implement to maximize and sustain the benefits of their incentives long term. That means they not only incentivize positive behavior but also use a comprehensive framework designed to increase success rates through careful planning, implementation, and ongoing evaluation.
Often, these initiatives combine more than one incentive, be it monetary, non-monetary, or both. However, implementing them goes beyond gift-giving or instant gratification.
IRF’s study shows that the length of an employee incentive program also matters.
In fact, those that run for a year or longer increased performance by 44%.
On the other hand, a six-month program yielded a 30% increase, while implementing an incentive for one week or less increased performance by 20%.
Ultimately, when organizations invest in long-term initiatives catering to their employees’ needs, they help create a positive work environment where employees feel more motivated, engaged, and committed to achieving shared goals.
Best Employee Incentive Programs
What is the Difference Between Employee Incentives & Employee Rewards?
Incentives are often confused for or used synonymously with rewards, mainly because they share responsibility of motivating and engaging employees. However, their purpose and means of reaching this goal differ.
Employee incentives encourage workers to achieve a goal.
In other words, their primary aim is to drive desired behaviors and outcomes. They provide employees monetary or non-monetary rewards, recognition, or other motivation stimuli before achieving a specific “target.” Incentives can either promote short-term gratification and outcomes or lead to long-term growth by contributing to developing a positive company culture.
Employee awards reward workers for achieving a goal.
They aim to show recognition and appreciation for employees’ performance, contributions, loyalty, or certain milestones, regardless of whether these achievements are tied to a specific target. The types of employee awards can overlap with incentives, which is one of the reasons many confuse the two.
In summary, while both share many similarities, incentives are more focused on driving specific performance outcomes through targeted rewards, while rewards as a category incorporate broader gestures of appreciation and recognition for employees’ efforts and contributions.
Benefits of Employee Incentives in the Workplace
A testament to their effectiveness, the research by IRF shows that, when done right, incentive programs can improve employee performance, increase engagement, and attract quality employees.
Moreover, statistics reveal that workers were seven times more likely to be engaged when satisfied by their company’s incentives. Incentivizing recognition, on the other hand, made employees:
- 73% less likely to experience burnout
- 56% less likely to seek new job opportunities
- 44% more likely to thrive in life
As evidence supports the shared benefits of employee incentives, let’s take a closer look at what it means for employers and employees.
For Employers
- Employee Performance: Improved productivity, motivation, and engagement are the immediate benefits when employers recognize and reward employees for their work.
- Organizational Growth: Workers’ engagement increases company profitability by 21%, leading to an improved bottom line as a direct advantage of employee performance.
- Attracting & Retaining Top Talent: As another significant employee incentive benefit, successful talent retention or acquisition can also reduce recruitment and training costs since each bad hire can cost organizations up to $14,900.
- Aligning Organizational with Employee Goals: Incentive programs can align individual efforts with organizational goals and priorities, ensuring that employees’ actions contribute to the company’s overall success.
- Improved Company Culture: Showing appreciation, specifically through a structured long-term employee incentive program, can lead to a healthy company culture, which, according to 88% of job seekers, is vital for success.
For Employees
- Job Satisfaction: More than 80% of employees reported being more satisfied with their work when they received recognition for their contributions.
- Increased Morale: A well-executed incentive program, either monetary or non-monetary, can instill a sense of pride and belonging in the workplace, ultimately increasing individual and team morale.
- Financial Wellness: Monetary incentives, such as cash bonuses, raises, or profit-sharing schemes, can improve financial stability and remove the most significant stressor for 46% of employees.
- Professional Development: Incentive programs often include opportunities for career advancement, promotions, and professional development, enabling employees to grow and progress within their roles and the organization.
- Workplace Perks: From flexible work to wellness programs, these perks and benefits provide added value and enjoyment to employees’ work experience, enhancing their satisfaction and well-being.
Examples of Employee Incentives in the Workplace
Corporate incentives range from cash bonuses to remote work to opportunities for employee training. While we already categorized them based on their financial background, the most common examples of incentive programs in the workplace include:
- Performance-based incentives
- Rewards and recognition programs
- Professional development opportunities
- Flexible work arrangements
- Wellness initiatives
Below, we explore each category separately.
Performance-Based Incentives
Rewarding employees for achieving performance goals and targets is one of the most common examples of incentive programs in the workplace. The mechanism is fairly simple – the company sets a measurable goal, and when individuals or teams accomplish it, they get compensated.
Performance-based incentives include:
- Bonuses for meeting targets
- Pay raises
- Sales commissions
- Profit-sharing plans
Rewards & Recognition Programs
Employee rewards and recognition motivate the workforce by showing appreciation for their work. In return, this reinforces positive behavior and strengthens employee engagement.
As a favored example of incentive programs in the workplace, many providers like Awardco and Guusto offer comprehensive recognition platforms and large awards catalogs that meet the diverse needs of the workplace.
Rewards and recognition programs include:
- Cash rewards, gift cards, vouchers, or points
- Personalized gifts
- Employee of the Month rewards
- Peer recognition initiatives
- Public recognition
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Professional Development Opportunities
According to statistics, 76% of workers would stay with their employer if it offered continuous learning and development. That’s just one of the many reasons why an investment in employees’ skills and knowledge is an investment in company growth.
Thus, examples of this incentive program include:
- Employee training
- Workshops
- Certifications
- Tuition reimbursement programs
Flexible Work
Flexible work arrangements are increasingly popular non-monetary incentives. Statistics indicate that flexible working helped 58% of organizations improve their reputation.
Another 61% of respondents noted their company’s earnings grew, and 83% said productivity increased.
For employees, the autonomous flexible work allows them to practice a better work-life balance, leading to better job satisfaction, productivity, and well-being.
Understanding the importance of recognition beyond generic gifts, platforms like Nectar HR offer companies the opportunity to create personalized rewards unique to their workplace.
Examples of flexible work incentives include:
- Remote work
- Flexible work hours
- Shorter workweeks
- Flexible time off
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Health and Wellness Initiatives
Finally, health and wellness initiatives promote employees’ physical and mental well-being. By prioritizing their workers’ health, organizations reduce absenteeism and healthcare costs and create a more positive and productive work environment.
Providers like WorkProud can help streamline this process through wellness and HRIS integrations, as well as extensive incentive and reward choices for different employee needs.
Wellness incentives include:
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The Transformative Potential of Employee Incentives for Employee Empowerment
Research by Gallup and Workhuman reveals that recognition and rewards make employees four times more likely to engage at work and five times more likely to recognize growth opportunities.
In fact, numerous studies have confirmed the transformative potential of incentives in the workplace, especially on employee well-being and empowerment.
All around, incentives are what motivate employees to excel, innovate, and contribute their best efforts to the organization’s success. As such, their potential in the workplace transcends simple gifts and recognition and becomes a powerful driver of productivity, engagement, and overall performance, shaping the very culture and trajectory of the organization.
Disclosure: Some of the products featured in this blog post may come from our partners who compensate us. This might influence the selection of products we feature and their placement and presentation on the page. However, it does not impact our evaluations; our opinions are our own. The information provided in this post is for general informational purposes only.
Written by Tamara Jovanovska
Content Writer at Shortlister
Sources
- The Incentive Theory of Motivation
- Incentives, Motivation And Workplace Performance: Research And Best Practices
- Empowering Workplace Culture Through Recognition
- Job Seeker Nation Study: Researching the Candidate-Recruiter Relationship
- Can Employee Recognition Help You Keep Them Longer?
- Empowering Workplace Culture Through Recognition
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