What is an employee incentive program?
Employee incentives are rewards and privileges that motivate employees to meet business goals. In the workplace, employers may provide monetary or non-monetary incentives through an employee incentive program to encourage employees to uphold excellent behavior and job performance.
Compensation incentive programs use cash bonuses and other financial perks to drive employee success and productivity. Non-monetary incentives (e.g., casual dress days, snack options, flexible schedules) are often cheaper to implement but can still have a big impact on employee morale.
Employers can offer a combination of incentives based on sales numbers, productivity and other predetermined standards depending on their business goals.
How are incentives different from benefits?
Incentives are optional perks you can provide employees to reward them for good work ethic or other factors, while benefits are typically mandated as unpaid additions to an employee’s salary. Benefits include:
- Retirement plans (401K)
- Sick leave
- Paid time off (PTO)
- Disability leave
- Unemployment compensation
Benefits of employee incentive programs
Offering incentives to your employees can bring the following benefits to your company:
- Builds loyalty: A well-designed employee compensation incentive program gives employees a reason to be invested in your company’s success.
- Contributes to low turnover rates: Similar to employee loyalty, offering incentives to employees can help reduce turnover rates within your company. That means you’re more likely to retain talented employees versus having to continually replace positions within your company.
- Motivates employees to level-up their productivity: A key benefit of offering workplace incentives is that they can motivate employees to increase their productivity. It could also prevent employees from experiencing burnout as they have a fun end goal to achieve.
- Improves culture: Implementing incentives in your workplace helps create a culture of motivation, self-management and responsibility while holding employees accountable for their work. For example, you could award a prize at the end of each month to the person who demonstrated the most compassion toward their coworkers and went out of their way to be helpful.
- Drives goals: Incentives can target specific goals such as sales numbers or retention rates to support your company’s strategic development.
- Provides an opportunity for increased teamwork and bonding: If you choose to create a department or company-wide employee incentive program that requires your employees to work together and rely on one another, this could help employees bond and create a strong team mentality.
- Demonstrates your appreciation for their hard work: By including fun and rewarding incentives as a part of your company culture, you can also use them as an opportunity to show your appreciation for your employees and their contributions to your company.
Examples of monetary employee incentives
Here are seven monetary incentives that you can consider for your company’s employment incentive program:
1. Spot bonuses
Spot bonuses or spot awards are small cash prizes given to employees in direct response to an achievement. Employers give out spot bonuses as a way to give special recognition to employees working on challenging projects or taking extra initiative beyond the scope of their position. You may have a fund for spot bonuses or use discretionary funds to give them out occasionally depending on what other incentives you offer. Spot bonuses usually don’t have set criteria other than being a response to exceptional work.
One benefit of offering spot bonuses is that they provide an immediate response to positive employee behavior. Even if an employee gets a yearly bonus based on performance, getting a small amount of cash right away provides positive reinforcement.
For example, a nurse who covered multiple shifts for other coworkers and delegated workflow during a busy flu season may receive a $100 bonus for going above-and-beyond.
2. Project bonuses
Employers can celebrate and reward project completion by planning for project bonuses. Project bonuses usually specify a particular deadline that employees have to meet in order to get a cash reward. When implementing a project-based compensation incentive, clearly list the criteria employees need to meet to get the bonus, including budgetary restrictions and milestones.
Project bonuses encourage teamwork and camaraderie, as everyone on the project team can have a stake in whether or not everyone receives a project bonus. For example, a manager agrees to give everyone on a certain marketing account a $500 bonus if they can complete all deliverables and get client approval by the end of the week. Each person would be motivated to work as a team and help each other accomplish the goal.
3. Performance bonuses
Performance bonuses are regularly scheduled cash awards that reflect employee success. Salespeople earning a higher commission percentage for making more sales are a common example of performance bonus incentives. Companies generally pay performance bonuses when employees contribute directly to their financial success and growth. Annual or quarterly performance bonuses are a popular way to track employee performance goals and reward top performers.
Read more: How to Motivate Your Employees
4. Merit-based raises
Standardized raise systems can also be a great compensation incentive, especially when a company wants to focus on long-term employee retention. Employees become eligible for merit-based pay raises based on performance reviews and meeting certain benchmarks. Unlike performance bonuses which are paid out as one lump incentive, merit-based raises reward employees with long-term salary growth. Over time, merit-based raises can add up and give employees a strong incentive to continue working for your company.
For example, many companies offer cost of living adjustment raises every year. Some also assess employee performance and reward employees who met or exceeded expectations with a higher pay rate. Clearly outline merit-based raise policies in your employee handbook to ensure fair compensation and equal opportunity for growth.
Related: How to Communicate a Pay Raise
Profit-sharing refers to when a profitable company distributes some of its revenue to employees. This is a particularly popular incentive technique among startups who may not be cash-flow positive. Profit-sharing allows employers to reward employees with the results of their work by giving out higher bonuses when the company makes more profit. This incentive style also helps employees feel more involved with the business’s overall success and understand how their actions impact the bottom line.
Profit-sharing incentive plans are usually based on a percentage of the employee’s salary, but can also be a percentage of earnings or a flat rate that is split among employees.
6. Referral bonuses
Referral bonuses are payments that employees receive in exchange for connecting their employer with a candidate for an open position. Employers offer rewards if they hire someone that an employee recommended and they stay in the position for a minimum amount of time, usually a few months.
7. Gain-sharing plans
A gain-sharing plan is a type of incentive where employees receive cash compensation as a result of increased productivity in one or more areas such as customer service, content creation or increased production (manufacturing). In this situation, you estimate the amount of money your company saved based on a more productive work environment.
For example, if your manufacturing plant lost over 600 packaged food products in the month of August due to employee error, and only 200 in the month of September, the amount of money you saved would be split among your employees.
Examples of non-monetary employee incentives
Beyond monetary incentives, there are also creative non-cash incentives you can consider offering your employees to boost morale and increase productivity.
8. Free vacations
Some employees may enjoy time spent outside of the workplace. Offer them a free vacation to a local or destination resort.
9. Improved equipment
Offer better workplace equipment such as a nicer desk, computer or chair. This can help employees work more comfortably and efficiently, and let them know that you care about their wellbeing.
Read more: How to Improve Office Ergonomics
10. More vacation time
Besides your typical paid time off, consider providing additional vacation days to your employees for their improved performance. This helps them achieve a greater work-life balance.
11. Casual dress days
Some employees prefer to work in casual clothing such as jeans and a T-shirt. Consider implementing a casual dress day once a week.
12. Outside services
Bring in outside services such as a chiropractor, food truck, yoga instructor or another service provider. These services can be helpful and are often things your employees wouldn’t seek otherwise.
13. Gift cards
If you’re interested in a monetary incentive, gift cards provide you with added specialization. Give employees a gift card based on their personal preferences, such as a music subscription, a bookstore or a restaurant. For example, the salesperson with the highest quota each month could receive a $50 gift card to the store of their choice.
14. Company picnics
Company picnics provide employees with a break from office life. They’re also a great way to improve team-building. Some examples beyond the traditional picnic in a park include a trip to an amusement park or another recreational facility.
15. Branded gear
Offer employees free branded swag such as clothing, coffee mugs or water bottles that feature the company name and logo. This doubles as free company advertising.
16. Public Recognition
Public recognition lets employees know that you’re grateful for their contributions while also informing others in the workplace of their accomplishments. It can also make them feel appreciated and can motivate other employees to improve their performance, too.
17. Charitable donation
Some people enjoy giving back to their local community or other organization. Consider offering a donation on their behalf for their good work.
18. Dogs at the office
According to the U.S. National Library of Medicine, dogs at the office can provide social support and stress relief. Consider letting an employee bring in their pet for a day. If an employee doesn’t have a pet, contact a local canine facility to bring in dogs for the entire office for a day.
19. Handwritten note
Provide employees with a handwritten note that shows them you took the time to appreciate their efforts. This can be a sincere card that they can keep on their desk.
20. Entertainment tickets
Sporting event or concert tickets allow employees to have fun outside of the workplace. These tickets can be for local events that they can enjoy on their days off.
Some membership examples include food delivery services, gyms, coffee clubs or book-of-the-month subscriptions.
22. Dinner on the boss
Consider taking your employees out for a free meal. This also gives your team a chance to bond and build professional relationships.
23. End-of-the-year party
Work parties allow employees to have fun and give them something to work for. You can also award public recognition to employees during these festivities.
Consider giving employees a plaque and a creative award. This shows you took the time to recognize them specifically and provides them with something they can keep on their desk.
A lottery ticket is an affordable monetary gift. You may end up giving them more money than you paid for the scratch-off.
26. Remote days
Many employees prefer the flexibility that working from home can provide. Consider offering them a day where they can work remotely and log in at the time of their choosing. This allows them to have a sense of independence on the job.
27. Vineyard or brewery tour
A free visit to a vineyard or brewery is a great way to encourage your team to improve their performance. Consider offering vouchers to a local destination or planning a team outing at a fun location.
28. House cleaning
Employees that don’t have as much time to clean their homes regularly may appreciate a courtesy cleaning. This can also help relieve some stress from their everyday life and provide them with a more habitable environment.
29. Rideshare reimbursement
If your company is in a big city, consider offering a rideshare reimbursement that helps ease the cost of getting to work or other locations such as school or entertainment venues during an employee’s time off.
30. Meal delivery
Catered or delivered meals are a way to incentivize your team. It also means they don’t have to pack or pay for lunch.
31. Fruit arrangement
Some employees may prefer an edible fruit bouquet as an incentive. There are several options from various companies to consider that can make the incentive more personable.
32. Free fitness classes
A free yoga or other fitness class provides your employees with a stress-free experience and a place to be outside of the workplace.
How to start an employee incentive program
Before introducing an incentive program, make sure to consult a lawyer to ensure compliance with labor and tax laws. It’s also a good idea to ask your accountant to determine the feasibility of a long-term program.
Follow these steps to create an employee incentive program:
1. Define clear goals for your incentive program
For example, if your business depends on sales, your incentive program should aim at maintaining or increasing your monthly volume. And, even if quantity is important, emphasize quality too.
2. Based on your goals, create an incentive program that rewards behaviors that benefit your business
Think about the methods your employees use to meet goals and which are most successful. If your company relies heavily on teamwork, provide team incentives. Individual incentives encourage employees to focus on their own contributions while team incentives inspire them to work together.
3. Determine the types of incentives you can afford
Offer incentives that work with your budget. A good way to ensure that an incentive is effective and financially feasible is to align it with profits.
4. Offer desirable incentives
Learn about what motivates your employees and design incentives that boost morale. For example, some employees may prefer monetary incentives like bonuses, while others may be happier receiving meal deliveries or more vacation days. Try sending out a survey to find out what your employees want most.
5. Be transparent and track performance
Be clear on goals, criteria and timelines. After you launch your employee incentive program, track performance to recognize your top contributors. Encourage your managers to provide daily or regular incentives to employees.