Employee incentives includes a wide variety of initiatives, rewards, structures and other details. We've broken out the crucial elements of incentive programs and how rewards play an important role in keeping employees motivated during their participation in the program.
The basics: Definition, success and popularity of employee incentives
What is an employee incentive?
A reward, bonus or other type of recognition given to an employee in exchange for meeting or exceeding work performance goals (defined as an employee engagement program), for meeting health or safety goals (as part of an employee wellness or safety program) or, increasingly, for completing money-management training or reducing personal debt (as part of an employee financial-wellness program).
How does an employee incentive program work?
To be effective, an incentive program should:
- Promote specific, well-defined actions
- Motivate employees to achieve stretch goals
- Include key milestones to help keep employees engaged and progressing toward the achievement of long-term goals
- Produce measurable outcomes
- Incorporate rewards your employees will find desirable and motivating.
How widespread are these types of programs?
- 84% of US businesses offer non-cash employee incentives, with 81% of businesses offering more than one type of non-cash reward
- Of those businesses, 70% offer gift card programs (totaling $24 billion annually)1
Get to know employee incentive vocabulary.
The way we talk about incentives can sometimes be confusing. Terms with very specific meanings are sometimes used interchangeably. The following definitions should help add clarity to the conversation:
- Award: Can take the form of money, prizes, plaques, travel and public commendations. Usually given out for achievements of a competitive nature, e.g., sales contests.
- Employee Engagement: An employee’s individual sense of purpose and focused energy, evident to others in their display of personal initiative, effort and persistence toward achieving organizational goals. Many companies create their own definition for this term, but everyone agrees that higher employee engagement means higher work performance and stronger company loyalty.
- Gamification: The addition of one or more standard game elements into an incentive program. Typically used to establish engagement with an incentive platform.
- Incentive: A form of variable payment that is designed to entice someone to take a particular action. The payment can be tangible or intangible, and may or may not have cash value. Incentives are generally non-discretionary and can be paid at any time of the year. Includes awards, rewards and recognition.
- Reward: An item given to an individual or team for meeting a pre-determined goal.
- Recognition: An after-the-fact display of appreciation for individual or team efforts. Can be tangible or intangible, and range from a thank-you email to public acknowledgement to travel.
- Recognition Program: A policy of acknowledging employee contributions after the fact, possibly without predetermined, expected goals or performance levels. Examples include giving employees clocks on milestone anniversaries, granting an extra personal day for perfect attendance, or paying a one-time cash bonus for making a cost-saving suggestion.
- Spot Award: A type of informal recognition that is delivered spontaneously, or “on the spot.”
- Total Rewards: The monetary and non-monetary returns employees receive for their time, talents, efforts and results. Deliberately includes all five key elements determined to enhance employee engagement: compensation, benefits, work-life balance, performance and recognition, and development opportunities.
The Benefits of an employee incentive program are numerous.
Incentives help engage employees, and engaged employees enhance your bottom line. So yes, incentives are an indirect route to bottom-line results. And no, you shouldn’t let the indirect-ness of their link to the bottom line discourage you.
In a 2017 study on engagement,2 author Jacob Morgan identified three aspects of the workplace environment that matter most to employees: cultural, technological and physical. Companies that were actively addressing the quality of all three aspects “had more than four times the average profit and more than two times the average revenue.”
Morgan also found that, among the top 6% of the companies that were investing in all three environmental aspects, performance was even higher.
Gallup’s annual “State of the Global Workforce” study agrees that engaged employees equate to better overall company performance. In the 2017 edition of the study, Gallup found that businesses in their database that fell into the top quartile were “17% more productive and 21% more profitable than those in the bottom quartile.”
Among business units that assigned work to employees based on their individual strengths, the survey tracked sales increases of anywhere from 10% to 19% and profit increases of up to 29%.
Why incentives matter now
Source: “State of the Global Workplace.” Gallup, Inc., 2017.
Employee Incentive Opportunities
It’s amazing how many places there are for employee incentives. Some are massive and obvious, others are unexpected and easy to miss. It’s good to know your options before you map out an incentive plan.
A. Retirement: The close of a career commands respect and acknowledgement from 42% of companies.
B. Service Anniversaries: The most widespread type of incentive is linked to loyalty and used by 90% of organizations.
C. Idea Generation: 27% of companies use incentives to mine employees for innovative ideas.
D. Monthly or Annual Employee Recognition: Whether of-the-year or of-the-month, 29% use this personal callout to inspire individuals.
E. Peer-to-Peer Recognition: To keep the idea of great performance circulating, 43% have peer-to-peer programs.
F. Family Events: 25% of companies support their people with incentives tied to major life events.
G. Performance Recognition: Strong performance has a ripple effect. That’s why 79% recognize it.
H. Safety Protocol: Cars and machinery and chemicals can create problems. That’s why 22% of employers enhance safety programs with incentives.
I. Sales Performance: Sales can crumble without goals, so 40% of employers attach them to sales incentives.
J. Wellness, Financial and Other Specific Behaviors: Employee wellness is the fastest-growing of this incentive type, which is found in 34% of organizations.
K. Attendance: Because attendance problems can affect productivity, 12% of organizations use incentives to keep it more stable.
Wellness programs are popular because they help offset the continually rising cost of health care. As a result, these programs can have a positive effect on employee morale. Negative incentives, such as charging higher health insurance premiums for not participating, aren’t effective. In a study by the Society for Industrial and Organizational Psychology, 70% of employees said that incentives would increase their interest in participating in a wellness program.3
Safety programs are designed to drive employee awareness of safety concerns and motivate them to follow established safety procedures, in all sorts of ways: by developing defensive driving habits, taking frequent breaks, choosing ergonomics and more. A properly designed safety incentive program not only rewards safe work, but also promotes proactive behavior such as making safety suggestions to others, identifying potential hazards and participating in safety committees.
Financial Wellness Incentives
The newest employer benefit on the scene, formal financial wellness programs began to appear around the time two key studies were published in 2016: PricewaterhouseCooper’s Employee Financial Wellness Survey, and the Society for Human Resources Management (SHRM) Employee Benefits survey. The results painted a portrait of US employees as not the most financially literate, and highly stressed about their personal finances.4 The view is that, by offering its employees financial education and guidance, a company can reduce this stress and engender loyalty. Incentives can include gift cards, egift cards or prepaid cards for activities like participation in educational presentations, webinar attendance or even one-on-one financial planning sessions.
The Gallup organization has found that in productive and engaged workplaces, employees receive recognition every seven days. Peer recognition programs are a simple, powerful way to keep recognition flowing, and improve working relationships, employee engagement and retention. Employees can show appreciation one-on-one or publically, using paper notes or ecards, bulletin boards, social media or SaaS engagement platforms.
Go long to send a strong signal.
The longer the duration of a reward or employee recognition program, the greater the chance that employees will get your message and make positive changes.
The 5 human drivers of behavior
In his 2012 book The Personal MBA: Master the Art of Business, author Josh Kaufman proposed that human behavior is influenced by five core drives. As we look at each one, we can identify a way in which incentives work to satisfy that drive:
Tangible incentives are vivid and full of sensory-rich specifics, so they’re stored in the emotional right side of the brain and “pulled up” often in anticipation. These are incentives that go beyond praise, and are things you can see or do. They can include non-cash financial incentives like gift and prepaid cards and egift cards, and even no-cost perks like reserved front-row parking for a week or month or a “work from home” day.
Intangible incentives, by contrast, are abstract, so they’re stored in the left, logical side of the brain and accessed less frequently and in less detail. An example of an intangible incentive is a cash incentive, which might be given in the form of a bonus check, or an additional amount added into a regular paycheck. Be careful not to confuse cash incentives with gift and prepaid cards! Although these rewards are cash-like, they are considered tangible because they are typically physical cards. eGift cards and ecodes take us into a semantic gray area, but they are still rewards. Just remember that a tangible incentive is given separately from pay, and is not considered salary, whereas an intangible appears on a paycheck.
Did you know?
People weigh an incentive’s value against how hard it is to earn. Ask too much, and people will dismiss your incentive. Choose employee rewards that inherently have higher value, and you can inspire higher performance. Keep in mind that indulgences, especially those that don’t have to be justified (like a gift card for a spa or restaurant), are more valuable. So are things that attract peer attention and stand out from regular pay.
People like choices
Time and again, our research tells us that people are happier when they have a variety of incentives to choose from. In our 2018 Consumer Preferences research, 56% of participants told us they expect to be able to choose from two or more reward options.5
This is why non-cash financial incentives—and gift cards, in particular—have become so popular. Instead of being handed a t-shirt, mug or watch, the recipient gets to choose what to purchase with the gift card.
Unlike a cash incentive (which tends to get mixed into the bank account and used to pay a bill), gift and prepaid cards are seen as mad money; an unexpected windfall. With a gift or egift card, it’s also earmarked for a certain store, restaurant or other establishment. In this respect, the recipient experiences a lack of choice, but it’s the good kind, because the employee has no choice but to treat herself to something special.
Gift cards are also increasingly popular because they offer the experiential reward that Millennials crave. For this lucrative demographic, gift and egift cards for things like hotel stays and movies provide a “best of both worlds” reward that converts from a tangible item into an enjoyable, and often shareable, experience.
Did you know?
Gift cards are the number-one employee incentive, and a whopping 73% of companies offer them.6
Why companies like gift cards
Employers are increasingly incorporating gift cards into their incentive programs, and it’s not just because people love them. The company derives a whole set of benefits from offering gift cards, including:
Recognition as incentive
Some of the best recognition methods start with “I,” the first letter of the word intangible. This is a nice little memory aid, as intangibility is also what separates employee recognition from rewards. Recognition you give your employees should include:
- Interesting Work: At least part of your work should be of great interest to you. Even people with inherently boring jobs become more productive when given at least one stimulating task or project. Also, keep in mind that what might seem boring to you can be enjoyably absorbing to someone else. Allow employees to gravitate toward work they enjoy.
- Involvement: The people who are closest to a situation have the best insight on how to improve it, yet are rarely asked for it. Employee involvement in developing workplace solutions enhances their commitment and can ease implementation of changes.
- Information: Employees crave knowledge about how they and the company are both performing. Start telling them, and soon they’ll be turning out the lights when they leave a room.
- Increased Visibility: For some workers, gaining increased visibility within the company is highly rewarding. Copy and share a letter of praise, acknowledge their work at a meeting or hang photos on a “wall of fame” to motivate them.
- Independence: All employees appreciate flexibility in their jobs, and it contributes to more desirable performance. Provide assignments in a way that lets employees know what needs to be done without dictating exactly how to do it.
Types of incentive program structure
Employee incentive programs can be created to support specific workplace initiatives, such as safety, wellness, years of service, productivity, sales, recognition and more. Depending on your program’s objectives, you have several different structures to choose from.
Peer or Social Recognition: In this “culture of recognition,” equals give each other praise or rewards for good work. According to the IRF’s 2017 Trend Report, nearly 40% of employee engagement programs now include a social recognition component.
Spot Rewards: In this structure, employees are handed rewards instantly, or “on the spot,” when they show strong performance or initiative.
Contests: Teams or individuals compete to win a reward. This structure is popular with highly competitive salespeople. Be careful with this one, though, as you want to avoid creating competition among people who are not naturally competitive. When that happens, your contest can create the opposite of its intended effect.
Points Programs: Employees collect points over time for meeting various goals. Points can be redeemed instantly for small rewards, or saved up over time to redeem for a larger reward.
One-Time Rewards: Incentives at their most straightforward—meet the goal, earn the reward. This structure is ideal when launching new products and policies.
#1: Online and mobile incentives
The number of online incentive programs has almost doubled in size every year. And nearly every traditional incentive company offers their clients an online component for incentive plans.
Why the increase?
- Online incentive platforms are faster and smarter: They save money and time while allowing organizations to have much greater control.
- Mobile devices help planners keep up: 60% of incentive planners have incorporated at least one mobile app into their programs.7 Mobile apps are typically used to enhance onsite experience or show program results.
At home and away, online is a part of life: As of December 2017, there are 4.1 billion internet users worldwide, representing 54.4% of the total global population.8 And internet use via mobile device outpaces desktop use, which means more people are browsing while on the go. So it makes sense that online and mobile access to an incentive program would appeal to the employees benefiting from it.
#2: Incentives and gamification
Gamification is the integration of game-like elements into a process or program. It is most popularly used to tie employee learning into an incentive program. (many companies have gamified their annual workplace training modules, for example).
Games tap into each of the five human drivers of behavior by engaging our innate motivation to collect, connect, explore, defend and win:
- The Collector: Gains resources and status
- The Socializer: Builds relationships
- The Explorer: Craves new ideas, and creates and seeks purpose
- The Killer: Protects what is important
- The Winner: Goal is to be the best
Gamification focuses on short-term results, rewarding and encouraging basic, measurable behaviors. This makes it a great tool for encouraging participation in an existing employee incentive program, but it won’t help foster long-term change or spark big-picture thinking. Some common gamification devices include:
- Points: Do something, get a point. Or the opposite—don’t do something, lose a point. One of the major foundations of gamification systems, and most other elements start here.
- Achievements: Similar to points, but specific, super-sized and given for performing tasks or reaching goals outside of the straightforward point system.
- Broadcasting: Nothing motivates like an audience or a competition, right? Adding a social element to an activity is a great motivator, whether you’re challenging others or celebrating accomplishments.
- Bragging rights: This is what you get when you put all the other elements together. Badges, stickers, medals and leader boards are used to classify points and achievements, and compare your standing against others.
The Incentive Research Foundation’s 2018 Trends and Outlook report says that the increase in desire for workplace incentives has come about as a result of the increase in focus on company culture. As more businesses seek to differentiate themselves through their culture, they’re looking for employees who are willing—and wired—to step beyond the bounds of the job description, and make more meaningful contributions in terms of leadership and innovation: