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What Are Incentives at Work?

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Beautiful black professional female with a small package with a red bow in her outstretched hands

Incentives Can Be as Simple as a Token Gift

Copyright Lisa Gagne
Definition:

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.

Four kinds of incentives are available for employers to use at work. I’m sure that others would categorize these incentives differently, but these four categories work for me.

  • Compensation incentives may include items such as raises, bonuses, profit sharing, signing bonus, and stock options.

  • Recognition incentives include actions such as thanking employees, praising employees, presenting employees with a certificate of achievement, or announcing an accomplishment at a company meeting.

  • 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 to refer job candidates.

  • 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.

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 to promote teamwork across departments and functional 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.

They are used for reasons such as:

  • Increase productivity

  • Retain employees

  • Attract and recruit great employees

  • 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 to 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 each other’s leads, share best methods, and work as a team to make sales.

Traditionally, manufacturing companies incentivized productivity or achieving quantity targets. They found that unless they added quality back into the equation, they were delivering shoddy, poor quality parts – although lots of them.

When you design an incentive program, make sure you are rewarding the actual behaviors that you wish to incentivize. It is so easy to emphasize the wrong behaviors – often unwittingly.

How to Provide Incentives

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

  • 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 thanks him or her for their contribution. You can also announce recipients at a company meeting and personally thank each recipient.

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, don’t cost anything and go 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 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, 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 desired behaviors.

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. 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 for performance and recognition.

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