Offering an excellent incentive for employees will benefit everyone involved.
Employee incentive programs boost morale and increase employee performance by up to 44%.
But differences in lifestyles and work environments can make it tricky to come up with the right incentive programs.
Coupons for romantic dinners are a good incentive for married employees but aren’t useful for single employees.
Similarly, remote employees can’t benefit from in-house donuts and coffee. It’s important to know how to reward both in-office and remote staff, especially considering that 5.7 million people in the US work remotely.
So how do you do it?
In this article, we describe nine proven rewards and incentives for employees, their pros and cons, and when to use them. We also cover how you can create a solid incentive plan for employees and the considerations involved.
Table of contents
- What are incentives for employees?
- Why do employee incentive programs matter?
- What proven incentive options are available?
- An example of how to reward your staff
- How to design the perfect incentive for employees
- ✅ Discover your employees’ needs and design the perfect incentives with skills testing
What are incentives for employees?
Employee incentive programs are any type of reward aimed at boosting productivity, encouraging performance, and increasing retention.
- Physical goods, such as wine and gift baskets
- Intangible rewards, such as employee recognition
- Monetary rewards, such as gift cards and bonuses
An incentive plan for employees gives you a chance to reward employees by recognizing their hard work.
These programs usually target existing employees to increase engagement, retention, and productivity, but they can also be an excellent way to attract new talent.
Why do employee incentive programs matter?
Although it’s a nice bonus, knowing how to reward your staff correctly is more than just about being “the nice boss.”
Employee engagement is trending downward, dropping from 34% in 2021 to 32% in 2022.
Your company can boost engagement by recognizing employees’ efforts, showing interest in their well-being, and offering flexible work options. You can accomplish all of these through incentive programs.
The benefits of employee incentive programs are far-reaching and affect both employees and employers.
If your company aims to effectively boost morale and keep employees invested in their work, you need a robust incentive program for your employees.
Employee incentive programs also benefit future hiring.
It’s telling that 42% of employees consider reward and recognition programs good opportunities when seeking employment. This means that solid compensation and benefits programs also help in recruiting top talent.
An effective incentive for employees provides these key advantages:
A study by Gartner showed that a recognition and rewards program can drive an 11.1% increase in employee performance.
And when employees are recognized at work, they are unlikely to look for a new job in the next three to six months.
An incentive program helps secure loyalty, boost employee retention, and reduce turnover.
At TestGorilla, we consider a great incentive program for employees to be a high priority in our retention strategy. That’s why it’s one of our top six ways to reduce employee turnover.
A great incentive plan will also improve employees’ overall well-being and contentment, boosting employee satisfaction and mental health.
The potential issues
Incentive plans for employees have potential problems.
Certain employee reward programs are desirable in theory, but a large number of employees never use them or just don’t care for them.
Perk programs that offer coupons and discounts at select retailers don’t incentivize every employee and often are ignored or seldom used.
Traditional corporate gifts and surprises, like having chocolates or wine delivered to employees’ homes, are also typically unwanted.
Physical gifts aren’t always good incentives for remote employees, and they can seem impersonal since they are typically given by distant employers.
Employees can tell when you don’t put much thought into choosing a gift.
You should design an incentive plan that uplifts the employee. If an employee doesn’t feel celebrated or rewarded, it means you aren’t engaging them correctly.
So, focus on recognizing your hardworking employees by offering incentives that they will find valuable.
The core value of employee appreciation should be at the heart of every incentive plan.
Remember that, and you’re golden.
What proven incentive options are available?
Great incentives for employees can come in many flavors, with something to suit every business.
Here are our top incentives for staff:
|Gifts or prizes||Gifts given through a points store enable employees to pick what they prefer||Low correlation between achievement and reward|
|Social recognition||Publicly acknowledges good work||Potential to cause division and jealousy|
|Team events||Boost work ethic and relationships||High cost for in-person events; Difficult for introverted staff|
|Professional development opportunities||Employees want career growth and advancement||High cost and time expenditure|
|Referral programs||Obtain high-quality hires; Encourage camaraderie||Possible biased recommendations|
|Profit sharing||Instills loyalty in employees||Potential for entitlement and jealousy|
|Bonuses and raises||Financial incentives are tied to motivation||Raise expectations and aren’t possible to ensure year after year|
|Health and wellness perks||Health and wellness are growing in importance||Not every employee prioritizes health and wellness|
|Choice of future projects||Gives an employee a chance to work on their favorite jobs||Star employees may then be unavailable when you need them|
Let’s dive into each of these points in depth.
1. Gifts or prizes
When choosing gifts for your employee incentive program, choose something that gives them options, like spendable points on a company eCommerce site.
This enables employees to choose items they’d actually like and use – unlike the generic impersonal gifts we mentioned earlier.
Gifts can be useful and engaging when employees are provided an opportunity to choose from an extensive catalog that offers items like gift cards, electronics, clothing, travel points, and more.
The main disadvantage to these systems is that the gifts have no direct correlation with employees’ work achievements.
When gradually building up a collection of points, employees won’t automatically draw a connection between their hard work and the prize.
Aurum, a luxury jeweler in the United Kingdom, started a reward points program after a downturn in sales.
It made the “Brilliance” program accessible to all staff, regardless of location, level, or experience. The company awarded small amounts of points for simply making a sale, but they gave large amounts of points to top performers and for team efforts.
Sales increased by 3.3%, 183,000 units of high-margin product were sold during the program, and 95% of staff participated.
So when should a business adopt this method?
Small gifts and spendable points are great if your company has a limited monthly budget since you’re able to give small rewards more frequently rather than large rewards rarely.
It’s also a low-maintenance form of rewarding employees. Providing managers with a quick way to give points is an efficient method of incentivizing workers.
2. Social recognition
Social recognition empowers employees by publicly acknowledging their hard work and achievements.
It can be done in a manager-to-employee or peer-to-peer manner.
Praise, shout-outs, birthday and work anniversary greetings, acknowledgments, and thank yous all fall under the category of social recognition.
One study found that 37% of employees consider recognition the most important factor in encouraging them to produce better work more often.
There is a reason “Best Employee” and “Employee of the Month” awards still exist.
A downside is the possibility of uneven recognition among employees. If others feel that a select few are always in the spotlight, there’s a genuine chance it will cause division and jealousy.
A popular way to socially recognize your employees is through internal communication platforms like Slack, although the approach of using social media is also gaining traction.
Many businesses now use LinkedIn, Instagram, Twitter, and Facebook to praise employee achievements.
Douglas Scott Recruitment shares testimonials on LinkedIn:
When is social recognition best used?
This is a free, easy form of rewarding employees, so it’s simple for most companies to adopt.
But you need to do it carefully to avoid unhealthy competition. It’s tricky to master this, but one way to start is to create a communication channel just for employee shout-outs.
That way, you can also give smaller bits of (genuine) praise to employees who aren’t top performers.
3. Team events
Team events help build peer relationships, encourage teamwork, foster company loyalty, and reduce stress.
These can range from lunches, charity events, and karaoke for in-person teams to virtual breakrooms, happy hours, and trivia nights via Zoom for remote employees.
Strong team building can improve work ethic and innovation by up to 10 times. Additionally, one-third of employees believe that a collaborative culture improves loyalty.
The cons of team events include:
- Expenditures for in-person gatherings tend to be large, not to mention that some people are still uncomfortable attending face-to-face events
- They can be unappealing to introverted employees
- The feelings of being rewarded are typically short-lived
The last point means that for your team events to be successful, you should schedule them regularly.
Team events can be as small as a casual coffee-and-donuts over video chat or as big as a large trip together. Incorporating these events into your company culture can make employees feel they belong.
Optus, an Australian telecommunications company, won the IMA 2017 Circle of Excellence Award for its Pacesetters Employee Incentive and Rewards Program.
Optus set up a competition in which top performers won a trip to Vietnam. While there, the employees were involved in activities like food tours, sightseeing, and the main point of the trip: charity work.
The team helped build six homes and repaired two schools.
This benefited the people who lived in the villages, but it also greatly benefited the employees by giving them a sense of fulfillment.
Optus says the competition is getting positive feedback to this day.
So when are team events best used?
Nearly any business can use team events depending on the scope of the event.
If your company is large enough, it could host something grand, like the trip mentioned above, but even video calls with lunch and beer are great incentives for remote employees in small businesses.
4. Professional development opportunities
Providing your employees with learning and development opportunities boosts their performance and enhances their overall growth.
This can include sending high-performing employees to conferences to give them networking opportunities or paying for an employee’s courses or certifications.
Learning and development opportunities are excellent incentives for employees because they appeal to their desire to grow and advance in their career.
According to the LinkedIn Learning 2020 Workplace Learning Report, 94% of employees would stay with an organization longer if it invested in learning and development.
Disadvantages of this incentive include the time and cost it takes to set up such a reward. Its positive impact, however, is undeniable.
Take the digital marketing company AdRoll’s incentive program as an example.
Corey Shott, an engineer at AdRoll’s software company NextRoll, was enrolled in the workshop “Women in Leadership,” a learning and development opportunity that coaches and trains women to pursue leadership roles.
Corey says that this program recognized and built up her technical skills, as well as soft skills like communication, leadership, and organization.
She also mentioned that NextRoll features other programs throughout the year to give all employees opportunities to grow in their jobs. Classes and workshops as employee incentive programs are best for businesses that have the available budget for such an investment.
If you do have the budget, the performance and continued growth of your employees will offset the cost.
5. Referral programs
Employee referral programs offer bonuses and perks to employees who refer other people to your organization.
Everyone benefits from referral programs:
- The employee receives a bonus for referring others
- The referred individual gets the opportunity to work with a new company
- The organization fills an open position
Studies show that these programs are the future since referrals are the top job-finding method for Generation Z.
The main disadvantage of a referral program is biased recommendations. Some employees may refer someone purely because they want to work with a friend.
They may also do it just to receive the referral bonus. So you are not guaranteed to receive high-caliber applicants through this method.
You can heavily personalize referral programs to add fun elements and make them more attractive.
SumUp holds employee referral happy hours, taking inspiration from Salesforce.
SumUp asked its employees to invite qualified friends and family to an event with drinks, snacks, and relaxed conversations.
It turned out to be a huge success, with a large turnout and everyone involved having a blast. The company even set up several interviews with the people in attendance.
This incentive plan for employees is best for when you have positions to fill and the referral program isn’t your only employee incentive.
Try using it in tandem with another program from this list.
6. Profit sharing
A profit-sharing plan is a program in which organizations give employees a stake in company profits.
Profit sharing provides employees with a sense of ownership in the business. Nurturing this feeling will encourage productivity and increase efficiency by aligning employees’ motivation with the organization’s motivation.
Offering stock options is also an effective way to strengthen this sense of ownership.
A profit-sharing incentive plan for employees has a few disadvantages, such as being costly. (You are, after all, giving away a percentage of your profits to the employees.)
Another con is the possibility of an employee in the program developing a feeling of entitlement to the extra money or an employee outside the program feeling resentful.
Huawei, China’s largest telecommunications equipment maker, displays profit sharing at its best.
Huawei is 100% employee-owned by more than half of its total staff – 104,572 out of its 194,000 workers.
Its structure turns eligible employees into stakeholders, building a solid, loyal relationship with them and sharing responsibility among everyone involved.
Profit sharing is best used when your business has shown a significant profit for a certain amount of time to maximize the chances that the program will be successful.
7. Bonuses and raises
Bonuses, raises, and various monetary incentives for staff are possibly the most common incentives out there.
A bonus is a one-time sum of money given for completing an important project, being a top performer, or staying with the company for a certain amount of time.
Raises are a permanent increase in pay, so they’re a bit rarer and more selective, being given only for significant changes in position or duties. Some businesses offer raises depending on the results of annual performance reviews.
Everyone likes a bonus or a raise. What employee wouldn’t want an extra-large paycheck?
The main con to bonuses and raises is that they elevate employees’ expectations. If top performers get bonuses for selling X number of products one year, they may expect them for reaching the same level of performance next year.
However, if your profits aren’t the same, you won’t be able to deliver.
Bonuses can also be popular incentives to promote your hiring campaigns.
The airline EasyJet needed to bolster its numbers after a dramatic drop in employees because of the pandemic, so they offered a $1,225 sign-on bonus to help attract talent before the busy summer season.
When is it best to give bonuses?
It depends on the bonus you want to award. There are many types – annual bonuses, sign-on bonuses, holiday bonuses, performance bonuses, etc.
Review which kind would fit into your processes and budget best.
8. Health and wellness perks
Showing you care about your employees’ physical and mental health is a brilliant way to encourage and engage staff.
Health and wellness perks are something that modern workers want and need:
- An average of 25.3% of the US population are physically inactive
- Employees are 1.6x more likely to stay with a business that offers wellness programs and benefits
- Workers consider a wellness stipend as one of the most important value-added benefits of a company
Plus, an organization that has health and wellness perks has a higher bottom line since these perks lower healthcare costs for their employees.
Here are some ways to incorporate health into an incentive plan for employees:
- Extra time off
- Gym breaks and gym memberships
- Healthy lunches (deliveries if employees work from home)
- Working remotely
The main disadvantage is that not every employee will want these things.
You can take inspiration from HRC Recruitment to make the most of your program. It asked its employees what they wanted and designed an incentive program around the responses.
This includes access to YuLife (a wellness app), flexible working options, plus 30 days of annual leave and bank holidays.
It’s not surprising that the program was a success, considering that 89% of HR professionals say that supporting work-life balance by offering flexible work resulted in increased employee retention.
When should you use it?
Every company can offer health and wellness perks. Even minor efforts like encouraging activity and installing more water coolers to promote hydration have positive effects. You can also follow HRC Recruitment’s strategy to determine if your workers want this program.
9. Choice of future projects
This incentive involves giving a top performer the opportunity to pick the project they want to work on.
For example, you could let a project manager choose their next marketing project or a graphic designer pick the client they enjoy designing for the most.
Giving your staff their choice of future projects fosters trust and loyalty, helping to build a relationship with them.
It also lets them do what they love and what they’re best at.
A downside is the possibility of losing a star employee before a challenging upcoming project. If they get to choose their work, they might not pick the project you prefer them to work on.
How about an example of this incentive in action?
A content marketing company hires a writer who does exceptional work. They impress clients, consistently hit deadlines, and always communicate on time.
As a reward, the business allows them to choose the clients they want to write for in the next month.
Happy writer, happy client.
Keep in mind, though, that this method is best used when you don’t have any crucial projects (that need your top performers) coming up.
An example of how to reward your staff
Let’s create a scenario where a manager creates an incentive plan for employees.
Alex is the human resources manager at a SaaS company. She’s been tasked with boosting workplace motivation and increasing engagement – not only to improve sales but to acknowledge employee achievement.
Step 1: Understand the desires of the workers. This helps determine what they would consider a perk or reward.
The best incentives for remote employees may be different from those for in-office employees, single employees versus married employees, etc.
Alex gets to know her employees by talking to them, sending surveys, and using online personality and culture tests to discover what would be suitable for every employee.
Step 2: Use this information to choose a program.
Alex chooses a wellness program based on the responses she received.
One of the things Alex considers is how sustainable this program will be in the long term. She does this by examining funding stability, organizational capacity, stakeholder partnerships, and more.
Step 3: Start setting milestones and criteria for the incentives, such as a milestone of reaching sales targets for the incentive of free yoga sessions.
During this process, Alex keeps in mind the main goals of the organization.
Since quality is the main goal of their SaaS business, Alex prioritizes quality-based awards over quantity-based ones. So instead of “sell X many products,” she uses “increase customer satisfaction by X percent” as a measurement.
The milestones aim to increase engagement and performance, so they should be a balance of challenging, rewarding, and achievable.
Step 4: Promote your program.
Once Alex has designed the program, she then has to promote it and tell her team about it. She could do this in a kick-off meeting or an announcement email.
This is just a quick example of how to reward your staff with employee incentive programs, but you can use this information to put your own plan into action.
How to design the perfect incentive for employees
No matter what program you decide to implement for your employees, certain key points will help you build and strengthen it:
|Offer an element of personalization||Personalizing your incentives will target what your employees value|
|Make it inclusive||Make the program available and applicable to every employee|
|Communicate the incentive program to all your employees||Clearly communicate your program through promotion and announcements|
|Use the incentives for attracting talent||Share your rewards and benefits with potential hires|
|Gather employee feedback||Ask your employees their opinion to continuously improve your program|
Let’s dive into these points a little deeper.
1. Offer an element of flexibility and personalization
The right incentive for employees is one that applies to them.
The best way to design a suitable incentive is to find out more about your employees. Talk to them, hold meetings, and evaluate their personalities with online tests.
Try TestGorilla’s Motivation test and 16 Types personality test to objectively study your workers’ personalities without favoritism or bias.
This will enable you to build the perfect incentive plan, which you can also use to recruit the best possible candidates.
2. Make it inclusive
Ensuring your plan benefits every one of your employees is important.
You should design employee incentive programs to include everyone regardless of age, race, gender, or ability.
Prioritizing inclusiveness will make sure everyone on your team is equally motivated.
3. Communicate the incentive program to all your employees
Like Alex’s program in our above example, you should make sure to effectively promote your incentive plan for employees.
Clearly communicate your plan by holding a kick-off meeting, making a special announcement in your messaging channel, and sending out emails.
4. Use incentives as magnets for attracting talent during the hiring process
A company with rewards and incentives for employees is attractive to job seekers.
Advertise your incentives on your website and in your job ads to let potential hires know about them.
Bonus tip: Referral programs are like automatic hiring magnets.
5. Gather employee feedback and improve your program
Continuous improvement is always the name of the game.
Gathering employee feedback on the program will help you polish it to a shine and create the best plan possible.
Implement an employee survey to determine your program’s effectiveness, how many employees participate in it, and how enjoyable it is.
Remember HRC Recruitment’s plan we mentioned above? It was based on employee advice and feedback and was subsequently a rousing success.
Discover your employees’ needs with TestGorilla
Building the right incentive program for your employees will improve performance, increase retention, and show your staff they’re appreciated.
There’s a perfect incentive for every company, whether it’s team events, bonuses, or professional development.
Whatever you choose, ensure it meets your employees’ specific wants and needs.
You can discover who your employees really are by using unbiased online skills tests, like those offered by TestGorilla. Tests like the Big 5 personality test help you get to know them so that you can design a suitable incentive program.
Creating a solid incentive plan for employees is a great way to be a strong, influential leader. Try TestGorilla for free today.