Employee incentive programs: 8 ways to incentivize your team
By Kim Rohrer|12 min read|Updated Feb 20, 2024
Employee incentive programs have proven effective at optimizing everything from employee engagement and productivity to generating high-value sales leads to increasing survey results.
In this article, you'll learn:
What an employee incentive program is
Why incentive programs are so effective
8 ways to incentivize your employees
Let’s dig in.
Table of contents
What is an employee incentive program?
An incentive program is a structured system for providing privileges and rewards to employees.
Employee incentives can come in two forms:
Monetary incentives — including cash, gift cards or prepaid cards (like Visa® prepaid cards), and money added to an employee's paycheck. These incentives are an addition to the employee's base pay.
Non-monetary incentives — including swag, praise and appreciation, gifts, travel, merchandise, experiences, promotions, or professional development. Basically, any privilege or reward that isn't money.
Why are incentives powerful motivators?
People are more likely to behave in a desired way if they’re rewarded with an incentive, according to a behavioral science theory called Incentive Theory in Motivation.
The reward could be:
Positive — a gift, praise or money
Negative — scold or discipline
Over time, people are nudged toward making decisions that benefit them (via the positive reward) and away from actions resulting in a negative outcome. If you think practically in your life, you’ll see examples of incentives everywhere. They’re often so subtle and commonplace that you might overlook the fact that they’re incentives. For instance:
Parents promising their child dessert if she finishes her veggies
A boss discussing a promotion contingent on end-of-year results
A car rental company offering a 10% discount if you leave a positive review
For the purposes of this article, we’ll focus on positive reinforcement — meaning incentives that reward a preferred outcome. When you apply this concept to your business goals, you’ll start to see many clever ways to guide people to take action. The best part: the outcomes can be mutually beneficial to your business and the recipient.
💡 Tremendous Tip: When you’re exploring incentives, remember to check for possible biases, inequities, and potential for abuse. For example:
The child will infer that veggies are something to be endured to get to the dessert, rather than developing healthy eating habits.
A salesperson might not have received the same training or pipeline opportunities as her peers, and would be unfairly disadvantaged in consideration for the promotion.
A rental car customer might be incentivized to leave an untruthful, but positive, review in order to receive the discount.
Employee incentives
Employee enthusiasm, engagement, and productivity wane over time, and the motivational appeal of their base compensation can lose power. A formal incentive compensation plan can boost morale and motivate employees. Businesses often provide:
Referral programs for hiring
Professional development
Equity incentive plans
Profit-sharing
Bonuses and raises
Health and wellness-focussed incentives
One-off gift cards
Sales incentives
Sales team incentives are often merit-based incentive payment systems that incrementally increase rewards based on how much value an employee generates for the company. The incentives can be both monetary and other — ranging from discounts at local retailers to event tickets. Companies often use:
Cash bonuses
Contests
Extra PTO
Subscription boxes
Activity-based rewards
Entertainment
Product prizes
Employee incentive program ideas
When you’re thinking about incentive programs, start with your company culture. Do you want to reward teamwork or superstars? Will you prioritize predictable efficiency or risky innovation? How might you connect your incentive program to your values or your mission?
Employees who feel connected to the company’s mission are 87% less likely to resign, so the more you can tell the story of why these incentives exist in your company, the better.
If your incentive program aligns with your company culture, it will feel purposeful and intentional, which in turn makes it more meaningful to employees instead of feeling like a hastily tacked-on perk.
Employee recognition and rewards programs
Employee recognition and rewards programs play a crucial role in boosting morale, fostering a positive work environment, encouraging high performance within an organization, and even reducing employee turnover by 43%.
Social recognition programs allow peers and managers to publicly recognize employees for their hard work and success, fostering a culture of appreciation and teamwork.
On the other hand, some company cultures might be better suited to gamifying recognition with a points-based recognition program, where employees earn points for meeting certain milestones or exhibiting company values, which they can then redeem for rewards such as gift cards, extra time off, or company merchandise.
Whatever direction you choose, remember to do what feels appropriate for the workplace environment you want to cultivate and the employee population you have.
Implementing a mix of these programs will help to ensure that recognition is inclusive and meets the varied motivational needs of your workforce.
💡Tremendous Tip: Take care to ensure that social recognition programs don’t become a popularity contest. Regularly review both who is receiving and giving recognition, and course correct any unintentional biases or inequities by collaborating with managers or team leads.
Referral programs
If you’re actively recruiting and seeking ways to increase your pipeline of qualified candidates, consider a referral program. You’ll want to ensure that your rewards mechanisms are clearly outlined, to maximize understanding and minimize arguments about whether or not someone has earned a reward. You’ll also want to understand your recruiting goals to ensure your bonus program is structured in a way that aligns with achieving those goals.
Referral bonus denominations vary widely. Some companies dole out as little as $250 for an entry-level hire, while others offer thousands. Generally, companies issue larger bonuses for hard-to-fill roles, and smaller bonuses for early-stage referrals.
But there is a sweet spot: according to one study by Instawork, somewhere between the $3,000-$5,000 range yields the greatest number of quality referrals without breaking the bank.
Of course, you can adjust this figure based on your goals. Are you trying to increase your pipeline of qualified candidates? Consider a smaller bonus for candidates who reach the interview stage. Have aggressive goals for hiring specific hard-to-fill roles?
Consider both a pipeline bonus and a larger bonus for referring someone who is successfully hired and makes it past the 90-day mark (or probationary period, depending on where you’re located).
You might also want to consider questions like whether a hiring manager is eligible for a bonus if they refer a candidate who gets hired on their team? (ahem, they should not be), whether you want to set goals that are particular to underrepresented groups, and how you will integrate your company culture into the hiring process, rather than just relying on employees’ own interpretations of “culture fit”.
The more you can be explicit about what you’re looking for, the better your referrals will be.
💡Tremendous Tip: It’s easy to accidentally create a homogenous team by relying too heavily on employee referrals. People are most likely to refer people from their personal networks, which is great in terms of being able to trust the quality of the candidate. But this can also lead to disproportionate amounts of employees from one prior employer, university, or social group.
Professional development programs
If you want to incentivize retention, invest in professional development programs. From informal mentorships to certifications and training, giving employees the opportunity to learn and grow is an excellent way to recognize their performance and potential.
Even if you don’t have large budgets for professional development, you can greatly impact employees’ ability to succeed by focusing on closing skill gaps with peer mentorship and free online courses.
By equipping employees with new skills and knowledge, you will not only enhance their performance, but also prepare them for future roles, which in turn enables you to fill higher-level positions from within.
This approach not only reduces recruitment costs because you’re hiring from within rather than kicking off an external search, but also leverages the institutional knowledge of your workforce to drive success across the business.
💡Tremendous Tip: Track the success of your professional development program to ensure equity across race, gender, age, department, etc. Use requests for new headcount as an opportunity to review existing talent for potential fits, even if they don’t meet 100% of the requirements yet. Be careful of biases; you want to consider every interested employee for development, not only the ones who know how (or are brave enough) to ask.
Profit sharing
Profit sharing is another incentive strategy where employees receive a portion of your company's profits in addition to their regular compensation. When the business does well, individuals do too.
When employees directly benefit from the company's success, you foster a culture of teamwork, as everyone works towards the common goal of improving the company's profitability.
However, the effectiveness of profit-sharing plans can vary depending on the company's profitability, the distribution formula, and how well the plan is communicated and perceived by the employees.
If you over-index on profit sharing and the company performs poorly, you should expect employees to be disappointed and even seek employment elsewhere.
💡Tremendous Tip: If profit sharing is an important part of your incentive strategy, ensure your distribution plans are as equitable as possible. While it may not be advisable for every single employee to enjoy this incentive, this model works best when everyone feels ownership of the company’s success. And if profit sharing doesn’t work with your business model, consider alternatives like a 401k match or company-funded childcare subsidies.
Health and wellness programs
Providing access to health and wellness programs is a great way to curb burnout and help employees maintain high levels of performance. Many programs will provide resources about things like smoking cessation, improving sleep, or mental health for those who are interested, but you must ensure they are opt-in and in no way connected to eligibility for promotion or pay increases.
Support for mental health programs in particular has increased 85% since 2020 - investing in programs to support employees’ mental wellbeing can have significant and lasting impacts on company culture, individual productivity, and business performance.
An employee wellness program can drive a number of benefits: according to The Principal Financial Wellbeing Index, 40% of surveyed workers feel encouraged to work harder and perform better, and 26% miss fewer days of work when these programs are in place.
Stay away from things that might come across as biased or exclusive, such as weight loss competitions or mandatory sports activities. Focus on overall health, with an inclusive lens, rather than specific goals or metrics that might not be applicable to all employees.
Education reimbursement
Providing reimbursement for educational programs such as workshops, certifications, and online courses is a great way to help employees upskill, particularly if they can learn things that will immediately contribute to company success.
When you celebrate milestones such as graduation or earning a certificate, you not only reinforce a culture of recognition, but you also give visibility to the program.
💡Tremendous Tip: Make sure to pair education reimbursement with time off to complete the program. Remember that not everyone has time in the evenings, and that people may struggle to juggle their regular work with additional learning program obligations.
Bonuses
Bonuses are a form of financial reward given to employees over and above their base salary, often as a recognition for achieving specific goals, exceptional performance, or for contributions that exceed regular job expectations.
These incentives can be structured in various ways, such as end-of-year bonuses, performance-based bonuses, or bonuses tied to the completion of specific projects.
A recent Payscale survey showed that 65% of U.S. employees prefer performance-based bonuses, and overall, bonuses are a fairly common and well-received incentive across many industries and employee groups.
And think about distributing the costs of these programs across the calendar year - studies find that regular, smaller rewards are actually more effective than a one-time lump sum.
💡Tremendous Tip: Consider the distribution of your bonuses to ensure they are not only available to employees who are already the highest-paid, and that they recognize the performance of every team member who contributed to the success.
Employee gifts
Whether lighthearted or luxurious, employee gifts can be a fun way to augment existing recognition and incentive programs. Reserve these for specific occasions like work anniversaries, hackathon prizes, or internal celebrations, and see if you can make them meaningful to your organization.
But don’t get too cutesy - in a cross-industry survey, we found that 65% employees prefer a cash gift to company swag or a statuette. And it doesn’t have to be big! $50-100 constituted the ideal gift amount for 55% of the employees we surveyed (and another 22% said that the cost didn’t matter at all).
💡Tremendous Tip: Allow employees to choose their own gifts through a rewards platform like Tremendous. Our catalog includes 2,000 redemption options available in over 200 countries, so there’s something for everyone. Letting the recipients have some ownership over the kind of gift they receive demonstrates an intention to be inclusive, allowing people who would rather donate to charity to do so, or those who prefer to put the money toward bills to redeem as a direct bank transfer.
Time off and flextime off
When you think about time off policies as part of your incentive programs, consider what you’re rewarding by offering additional time off. Recognize a job well done, unexpected overtime, or a particularly difficult season with extra time off.
Among the employees we surveyed, extra (paid) time off ranks #2, just behind cash, as the most desirable incentive gift.
This doesn’t have to be a one-time thing either — encouraging the use of flextime can be another way to incentivize quality work in an equitable way, allowing people to work when they are most productive, or to balance their work with other obligations.
Given that nearly a quarter of workers value time off almost as much as they value more cash, time off and flextime are gifts you should definitely consider offering year round, rather than just at the holidays.
💡Tremendous Tip: Make sure to offer time off incentives equitably, based on work, to avoid preferential treatment. Consider a companywide flextime policy to encourage an inclusive and trusting environment where employees are given autonomy over their schedules.
Benefits of incentive plans for employees
Why, as a business leader, should you care about incentive programs?
Engaged employees are 18% more productive and 23% more profitable, according to Gallup.
An employee who gets a bonus (or some other tangible benefit) for exceeding their revenue target might be inspired to work a little harder in order to get the extra sale.
An employee who knows they can count on extra paid time off after a grueling busy season may be less likely to burn out, knowing there’s a light at the end of the tunnel.
Reinforcing your company values through peer recognition awards can foster a more cohesive and connected company culture, increasing engagement and teamwork, which often result in better business outcomes.
When implemented effectively, the benefits of these strategies can build upon each other to fuel business growth. These incentive programs help:
Emphasize employee wellness
Increase employee engagement and productivity
Improve team collaboration and culture
Bolster partner satisfaction and advocacy
Support top-line and bottom-line growth
Conclusion
There are many different types of incentive systems you can implement in order to drive better business outcomes while maintaining a high level of employee satisfaction and engagement. For example:
Financial rewards such as bonuses, referral programs, and profit sharing
Investments in career growth such as professional development opportunities, rewards and recognition programs, and education reimbursement
Benefits and perks such as flextime or additional paid time off, employee gifts, and health and wellness programs
Employing the right combination of these incentives will enable your team to thrive, and create a more sustainable future for your business. Flexibility and career growth are always good choices to incentivize performance.
It’s hard to pick an incentive that makes everybody happy. So don’t. Allow recipients to choose their reward themselves with Tremendous.
Our catalog of 2,000 redemption options across 200 countries includes everything from Amazon and Starbucks to Doordash and Uber, as well as charitable donations, Venmo payouts, Visa prepaid cards, PayPal transfers, and direct deposit.
Ready to launch an employee incentive program that makes everybody happy? Sign up today and send your first incentive in minutes, or chat with our team.
Published February 20, 2024
Updated February 23, 2024
