Employee incentive programs are initiatives that motivate workers and reward them for high performance. This could include monetary rewards like pay bonuses, as well as non-monetary incentives like public recognition and professional development programs. In addition to encouraging employee performance, these programs can also grow employee engagement and increase employee retention.
What Is an Employee Incentive Program?
Employee incentive programs motivate employees to be productive or grow their professional skills. This could include monetary examples, like bonuses and stock options, as well as non-monetary examples, like employee recognition programs and wellness programs.
What Are Employee Incentive Programs?
Employee incentive programs are employer benefits that motivate employees to do their best work. They go beyond salary and health insurance to reward high-performing employees for their accomplishments.
Often associated with monetary rewards like bonuses, commissions and stock options, employee incentive programs can also include non-monetary rewards, like additional PTO and wellness programs. Employee incentive programs are also a tool to facilitate professional growth, like tuition reimbursement programs or stipends for learning and development.
When organizations offer incentives for their employees, it is an investment in their growth and development. As a result, employees are more likely to perform at a higher level, feel invested in their work and stay with the organization.
“People are no longer just coming to work for their paycheck every two weeks,” Carly Holm, founder and CEO of fractional HR firm Humani HR, told Built In. “I think the newer generations in particular are challenging employers to think beyond just the salary. If I’m going to go above and beyond, what does that mean for me?”
10 Examples of Employee Incentive Programs
Employee incentive programs vary widely in terms of their monetary value and the outcome they are incentivizing. Below are some of the most common employee incentive programs.
1. Bonuses
The most common type of bonus is an individual incentive bonus, which rewards employees with extra pay for hitting their performance goals. Many companies also give out company performance bonuses that are contingent upon the success of the organization at-large. Some employers also offer spot bonuses, which are discretionary bonuses awarded instantly — not the end of the year or quarter — to employees who go above and beyond.
2. Equity
Equity gives employees ownership in the company in the form of shares or stock options. It’s a popular incentive program for early-stage companies because it’s inexpensive and motivates employees to grow the company’s value. The most popular form of equity compensation for employees is stock options, which gives workers the chance to purchase shares in a company at an agreed-upon price.
“[Stock options] are a really great way to say you are an owner of this company, that you are a part of our progress and our success,” Amanda Day, senior director of people enablement at HR software company Remote, told Built In.
3. Employee Recognition Programs
Employee recognition programs are a way of acknowledging an employee’s good work. The recognition could highlight an employee’s accomplishments, teamwork or tenure. Many organizations encourage peer-to-peer recognition through employee recognition software, and company leaders may amplify some of the most significant accomplishments in company-wide meetings.
Recognition is often inexpensive, but it can be very meaningful for employees, as it is linked to productivity, engagement and retention. It can also set a standard of excellence for other employees to aspire to.
“By acknowledging good work, you’re showing what good work looks like to the rest of the organization,” Day said. “That will bring everyone along for the ride, and it will show up in different ways and in different areas.”
4.Employee Referral Programs
Employee referral programs encourage existing employees to recommend potential job candidates from their personal network. If the employee is hired, the company would give a cash bonus to the employee who made the referral. The employee might receive another payment if their referral makes it past the first 90 days or six months.
Referrals can save companies a lot of time and expense in recruiting candidates. And because they have already talked with their friend about the position and the company, they are more likely to be a solid match for the job and a cultural fit for the organization, Day said.
5. Professional Development Programs
Professional development programs encourage employees to upgrade their skills and knowledge, which is professionally rewarding for employees and helps companies remain competitive in a dynamic marketplace.
Companies could offer employees a learning and development stipend to use for conferences and continuing education courses, or they could offer third-party learning management software. Some companies offer their own professional development programs.
6. Wellness Programs
Employee wellness programs can include stipends for gym memberships, home gym equipment or therapy appointments. Companies can also partner with third-party mental health providers that provide easy access to counselors without the hassle of finding a provider and navigating insurance requirements.
These programs aren’t just rewards for employees; they benefit organizations in the long run too: “We recognize that personal and work life can impact each other,” Day said. “If you’re supporting someone in their personal life, you’re going to see that loyalty and that engagement come back in their work as well.”
7. Additional Paid Time Off (PTO)
Paid time off is an important reward for employees; studies have found that employees value PTO more than health insurance and that they would even take a salary cut for more PTO. The promise of additional PTO after a big project can incentivize employees to finish strong and will be much appreciated after a long sprint.
“People really value paid time off of any kind,” Holm said. “I think that’s a really good incentive, especially for companies that can’t afford big salaries. If you can afford to give your employees a little bit more time off than your competitors, then I think that’s a great way to motivate your team.”
8. Tuition Reimbursement
Tuition reimbursement covers the tuition costs for employees who want to go back to school. Some companies limit tuition reimbursement or assistance to coursework that is relevant to their industry. These programs can motivate employees to advance their knowledge in a given sector, which will help the company stay up to date on the best practices in their field. It can also encourage employees to stay and advance their career with a company that supports their continuous growth and development.
9. Gifts
Gifts acknowledge an employee’s hard work in a way that feels personal and heartfelt. Companies can offer gifts for any occasion, including birthdays, a work anniversary or the end of a successful year. Hunting for a gift can be time-consuming, so many companies use corporate gifting platforms that can send employees gift cards, snacks, gadgets and company swag.
10. Profit Sharing
In a profit sharing program, a company allocates a portion of its quarterly or annual profits with employees, typically in a retirement account. Similar to equity compensation, profit sharing programs can motivate employees to work hard and make the company profitable.
Benefits of Employee Incentive Programs
Employee incentive programs can help companies on several different fronts.
Improved Employee Productivity and Performance
Employee incentive programs can motivate employees to be more productive. A study by the Incentive Research Foundation found that programs using money or other tangible awards increased employee performance by 22 percent. When employees perform at a higher level, organizations see higher productivity and increased profits.
More Employee Engagement
When employees are motivated to reach their goals and grow their professional skills, they become more engaged in their work. A Gallup poll found that employees are nearly four times more likely to feel engaged when employee recognition is a part of their organizational culture.
Increased Employee Retention
When employees feel like an organization supports their professional development, they are more likely to stick around. According to the Gallup poll, employees are 56 percent less likely to look for a new job when recognition is a part of their organizational culture.
“You want to create a culture where you are attracting the best talent, but also where you’re retaining them, where you’re developing them and growing them,” Day said. “The best way to retain people is to make sure that they feel valued.”
Higher Return on Investment
Employee incentive programs also deliver a higher return on investment than traditional compensation, David Satterwhite, CEO of HR software company Chronus, told Built In. Having worked at both high-paying companies where employees left and average-paying companies where employees stayed, Satterwhite said the biggest factor affecting an employees’ decision to stay with a company is not based on compensation — rather, it’s based on opportunities for professional development, mentorship and connection.
“You can get away with spending less on your compensation-based incentive programs if you’re focusing on these areas that actually have a bigger bang for the buck with your employees,” Satterwhite said.
Implementing an Employee Incentive Program
If you’re thinking about rolling out an employee incentive program, there’s a few things you should keep in mind.
Solicit Employee Feedback
When deciding which employee incentive programs to offer, organizations should ask the people who will be using them: their employees. This could take the form of a poll on Slack or several questions in an employee engagement survey (with the disclaimer that programming may be impacted by budget). By asking employees about their priorities, you can select a benefit that is more likely to be used and appreciated by employees.
“You could roll out a lot of really great programs that you think are amazing, but it won’t matter if no one cares about them or feels the value,” Day said.
Offer Multiple Options
Instead of offering just one or two employee incentives, Day suggests offering a suite of incentives that appeal to the diverse motivations of a company’s workforce. Some employees may be more motivated by a learning and development stipend, for example, while others may be more motivated by additional time off.
“You really want to identify what is going to have the biggest impact on your company,” Day said. “Offering different options is going to help with the variety.”
Promote the Programs
Employee incentive programs can be a powerful tool for recruitment and retention, but only if people know about them. Companies should talk about their incentive programs in their recruitment materials and company website, and they should periodically remind employees about these programs in employee communications. For example, HR teams could highlight a different incentive program every month if they distribute a monthly email newsletter. Company leaders and managers can also lead by example by talking about their participation in these programs.
Set Clear Criteria
The criteria for incentive-based compensation should be clear, measurable and aligned with the outcome the company wants to achieve. If the criteria sound fuzzy or subjective, employees might feel like they are entitled to the bonus — and they could feel slighted if they don’t receive it.
“What employees resent the most are programs that are very heavily laden in subjective standards,” David Lewis, CEO of HR consulting firm OperationsInc, told Built In. That includes “loose, soft terms like ‘maintain a high level of performance’ and ‘demonstrate a high energy level.’”
In fact, Lewis suggests managers develop the criteria for incentive-based compensation in collaboration with their key employees.
“A lot of companies go out there and do victory laps … about what the C-suite thinks is a winning formula or strategy around incentive compensation,” Lewis said, “only to come to realize that they’re missing the mark in a lot of different ways because they haven’t asked their employees what would motivate them.”
Be Mindful About Company-Based Incentives
Most companies’ bonuses are predicated on the performance or profitability of the company, but those companies aren’t often transparent about the financial well-being of the company. If a struggling company withholds bonuses for financial reasons, they run the risk of in-demand employees leaving the company (assuming they have the option to). Lewis suggests not tying bonuses to metrics they’d rather not discuss, like the company’s finances.
“If you’re going to have these programs in place, and your people meet or exceed all of those targets, the penny-wise, pound-foolish trap that companies always fall into is to not pay the bonus — and worse, tell them the reason is because the company’s not doing well financially,” Lewis said.
Frequently Asked Questions
What are employee incentive programs?
Employee incentive programs are designed to reward employee accomplishments, encourage professional development and increase employee engagement. This could include monetary incentives like bonuses or non-monetary incentives like an employee wellness program.
Do employee incentive programs work?
Employee incentive programs can increase productivity, engagement and retention if they are thoughtfully designed and executed. Bonus programs, for example, should be based on clear expectations that encourage productivity and avoid perceptions of unfairness. Leaders should also be aware that incentive programs can inspire some employees to take shortcuts or act unethically.
Employee incentives vs. employee benefits
Employee benefits like health insurance and paid time off are expected by many employees as part of their total compensation package. Employee incentives go above and beyond those core offerings by motivating employees to reach their performance goals, advance their skills and stay with the company.
