What Are Employee Incentives at Work?

Why Should Employers Use Incentives at Work?

An incentive is an object, item of value, or desired action or event that spurs an employee to do more of whatever was encouraged by the employer through the chosen incentive. You want to manage your incentives in such a way that you do not create entitled employees. You also do not want to demotivate employees because the incentives they desire are not available. Consequently, the first step in offering your employees incentives at work is to ask them what kinds of incentives they would most like to receive.

Four Options Exist for Employee Incentives

Four kinds of incentives are available for employers to use at work. Others might categorize these incentives differently, but these four categories work for most situations.

1. Compensation incentives may include items such as raises, bonuses, profit sharing, signing bonuses, and stock options.
2. Recognition incentives include actions such as thanking employees, praising employees, presenting employees with a certificate of achievement, or announcing an employee's accomplishment at a company meeting. Employers can offer recognition incentives as part of an overall company employee recognition program. They can also offer employee recognition in the day-to-day interaction of managers with employees. A personal note of praise from the manager is an employee favorite incentive.
3. Rewards incentives include items such as gifts, monetary rewards, service award presents, and items such as gift certificates. An additional example is employee referral awards that some companies use to encourage employees who refer candidates who perform effectively on your job when hired. These incentives are often awarded in conjunction with recognition incentives to send a positive message to employees about what contributions and behavior the employer wishes to see more of in the workplace.
4. Appreciation incentives include such happenings as company parties and celebrations, company-paid family activity events, ice cream socials, birthday celebrations, sporting events, paid group lunches, and sponsored sports teams. An example is a product development team that meets the goals of its first phase of a product project and orders in pizza for the team celebration. 

How Do Employers Use Incentives?

Employers use incentives to promote a particular behavior or performance that they believe is necessary for the organization’s success. For example, a software company provides employee lunches on Fridays to promote teamwork across departments and functional areas.

The lunches are also an excellent opportunity to brief employees on company progress outside of their assigned areas. They also use the lunches to provide necessary information to employees or for employees to present to their coworkers on hobbies and interests—all of which contribute to staff members knowing each other better.

Incentives are used for reasons such as:

• Increase productivity.
• Retain employees.
• Attract and reward high achievers.
• Thank employees for reaching and exceeding goals.
• Encourage teamwork.

Problems With Incentives

Incentives can be tricky for employers. Depending on what is incentivized, employers can encourage teamwork and cooperation or damage it. If you provide an individual sales incentive for sales staff, for example, you guarantee that your sales force will not work together to make sales.

Alternatively, provide a team incentive and employees will follow up with each other’s leads, share their best methods, answer every technical phone call, and work as a team to make sales.

Traditionally, manufacturing companies incentivized productivity or achieving quantity targets. They found that unless they added the quality back into the equation, they were delivering shoddy, poor quality parts—although lots of them were delivered. Customers want the quality of the product to be part of the equation.

How to Provide Incentives

Reward and recognition activities that are transparent work to build trust with employees. If the reward criteria or the recognition process are kept a secret, if they appear to only recognize pet employees, or if they are arbitrary, you risk alienating and demoralizing employees.

Consequently, for the successful use of incentives, employers need to:

• Make sure that all employees understand the objectives the employer has in offering incentives.
• Ensure that the criteria for obtaining the incentives are clearly spelled out.
• Communicate the specific criteria to all employees. Provide examples so that employees understand what you are seeking and share your picture of success.
• State the timeline and allow a certain amount of time for employees to accomplish the actions that you'd like to see when you communicate the incentives criteria.
• Reward every employee who achieves the expectations.
• Tell the employees exactly why their contribution made them eligible to receive the incentive.
• You can magnify the power of the incentives you provide by writing a letter to the employee that provides thanks to him or her for their contribution. You can also announce all of the recipients of the incentive at a company meeting and personally thank each recipient.

Managers Are Encouraged to Provide Incentives on a Daily Basis

In addition to company programs or incentive processes, managers have the opportunity every day to provide incentives for employees. A simple thank you, even asking the employee how they spent their weekend to indicate care and interest, doesn't cost anything and goes a long way in helping employees experience positive workplace morale.

Gifts that are provided for specific achievements such as releasing a product or making a large customer sale should be random and frequent. You want to create an environment in which employees feel that recognition and incentives are available for good work and that they are not a scarce resource.

You also want to avoid doing the same thing every time because those incentives eventually become entitlements. Once they are entitlements, they lose their power to recognize employees or to communicate and reinforce the behaviors the employer wishes to encourage.

Incentives can help employers reinforce with employees the kinds of actions and contributions that will help the organization succeed. Used effectively, incentives help build employee motivation and engagement. Employees want to be part of something that is bigger than themselves.

Employers need to use more incentives to help build employee morale and to ensure that employees feel appreciated for their contributions. Distributed appropriately, in a transparent manner that employees understand, you can't go wrong with incentives to praise and thank employees for their performance and contributions.