Imagine stepping into your office on a Monday morning. Instead of the usual sighs and groans echoing through the hallways, there’s a buzz of excitement and anticipation in the air. Your employees are motivated and happy to be there. This is not a vision of a utopian corporate world. It’s the reality in today’s most successful companies, thanks in part to their innovative and popular employee incentive programs.
Take Amazon, for example. From 2014 to 2022, the e-commerce titan had a longstanding employee incentive program: offering employees a bonus of up to $5,000 to quit their job. At first glance, this seems counterintuitive, reckless even. In reality, it’s a calculated, thoughtful program designed to transform the workplace and take employee engagement to a whole new level.
The Offer, as it was popularly known, was a brainchild of the Zappos team. Amazon iterated and improved it when they acquired the apparel and footwear brand in 2009. “The goal is to encourage folks to take a moment and think about what they really want,” CEO Jeff Bezos told shareholders. “In the long run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company.”
With increased disengagement among employees globally and associated costs of low employee engagement, Amazon’s unconventional employee incentive program makes sense. In fact, other forward-thinking companies in the United States have adopted similar programs, spending $176 billion per year on incentives and rewards. Welcome to a world where the old ways of “give me all your time and attention, and I’ll give you some money” are being replaced by creative, engaging, and mutually beneficial programs. Let’s explore some of today’s most impactful employee incentive programs and what makes them stand out.
- What are Employee Incentive Programs?
- How Do Employee Incentive Programs Work?
- Employee Incentive vs. Bonus
- Employee Incentives vs. Job Perks
- Why Do Employers Offer Employee Incentive Programs?
- What are Some Common Types of Employee Incentive Programs?
- What are the Characteristics of Good Employee Incentive Programs?
- What are the Most Popular Employee Incentive Programs Today?
What are Employee Incentive Programs?
At their core, employee incentive programs are structured strategies or plans used to motivate and reward employees for achieving specific goals or milestones. These goals can be anything from meeting sales targets, completing projects ahead of schedule, demonstrating exceptional teamwork, etc.
A Harvard Business Review study found that employee incentives do boost job satisfaction, inspire better performance and commitment, boost employee engagement and increase trust in management. Multiple studies show this is a good thing. According to an Oxford University report, job satisfaction increases productivity by 31%, increasing profitability in turn. Let’s explore how these programs achieve that.
How Do Employee Incentive Programs Work?
The specifics of an employee incentive program vary from employer to employer. However, they all operate on one basic principle: the better the performance or the higher the achievement, the greater the reward. This can be tied to individual performance, team performance, or company-wide performance.
Whichever form they take, employee incentives are structured to reward short-term achievements, long-term loyalty, or both. According to a study by the International Society of Performance Improvement (ISPI), “the longer the implementation of an incentive program, the greater the performance gains realized.” (Long-term incentive program produced up to 44% increase in productivity).
The rewards or incentives offered in the program can be anything from financial bonuses, to profit-sharing, and employee stock ownership plans, etc. They can also be non-monetary rewards such as additional time off, special recognition, health screenings, employee stock options, etc.
Employee Incentive vs. Bonus
Sometimes the terms “employee incentive” and “bonus” are used interchangeably. While this can be true sometimes, there’s a key distinction between the two terms.
An employee bonus typically refers to a monetary incentive given to exceptional employees on top of their base pay. It is often offered after a performance period, say a year or a month. Most notably, bonuses reward past results (more retrospective).
Types of Bonuses
Bonuses come in many shapes and forms, such as
- Cash bonus
- Performance bonus
- Signing bonus
- Referral bonus
- Holiday bonus
- Spot bonus
- Referral bonuses
In contrast, an incentive is a tool designed to both motivate employees and encourage desired behaviors and outcomes for the future (prospective in nature). Effective employee incentives are usually tied to specific KPIs (key performance indicators). Goals and are not solely based on past performance. The fundamental goal of an employee incentive program is to motivate employees to achieve more and aim higher rather than just rewarding them for what they have already achieved.
Another difference is the nature of the reward. While bonuses are typically cash rewards, employee incentives can be monetary and non-monetary. Examples of monetary incentives include commissions, profit-sharing programs, project completion bonuses, stock options or equity, etc. Non-monetary incentives include additional vacation days, flexible work hours, training opportunities, employee recognition programs, and health and wellness initiatives.
Employee Incentives vs. Job Perks
While employee incentives are typically are monetary or non-monetary rewards that are generally tied to job performance or productivity, job perks are additional, nice-to-haves designed to foster a positive company culture. While they, too, can motivate and spur employees to achieve more, job perks are generally not tied to the recipient’s performance. They are available to all employees regardless of their performance level.
Instead, a perk is simply an additional employee benefit meant to make the company a more attractive workplace. Their main objective is to improve employees’ overall job satisfaction and work-life balance.
Employee perks vary widely from company to company and industry to industry. Popular perks include:
- Flexible work hours or remote work options
- Health and wellness programs such as gym memberships, mental health resources, on-site health screenings
- Free or discounted products or services
- In-house training opportunities
- Tuition assistance
- Free catered meals/drinks
- Subsidized daycare and eldercare
Why Do Employers Offer Employee Incentive Programs?
It’s simple: effective employee incentive programs boost morale. And morale has a domino effect in the workplace. It helps boost employee productivity, improve performance, enhance loyalty, and even reduce turnover. Consequently, motivation is the backbone of other positive employee behaviors that drive organizational and employee success.
Here’s a short video explaining the psychology of motivation (https://youtu.be/rIOTk5mlpyo)
For many years, behavior scientists and management experts have conducted countless studies to understand how motivation works. Frederick Herzberg’s two-factor theory, Maslow’s Hierarchy of Needs, and Vroom’s Expectancy Theory all help us understand the complexities of human motivation.
Herzberg’s two-factor theory
In the course of his life, Herzberg looked at two factors that he called motivating factors and hygiene factors. According to Herzberg, motivating factors tend to be intrinsic to employees. They are things you find within your psyche and will always give you more motivation. Examples of intrinsic motivators include achievement, recognition, the work itself, responsibility, advancement, and growth.
On the other hand, extrinsic motivating or hygiene factors refer to motivation that comes from the outside. These include pay, work conditions, workplace policies, supervision, and interpersonal relations. Herzberg notes that extrinsic motivators only result in dissatisfaction when they are absent. Simply put, extrinsic motivators work best when there’s a bedrock of intrinsic motivation underneath.
Effective employee incentive programs are a practical application of Herzberg’s theory, as they seek to enhance both these motivational and hygiene factors to create a more fulfilling and rewarding work experience.
Abraham Maslow’s Hierarchy of Needs
Renowned psychologist Abraham Maslow’s work is largely the basis for most of the present understanding of human motivation. Maslow suggests that human needs can be classified into broad classes that can be further arranged in a hierarchical order such that some are more basic and others are higher. Maslow posits that once we satisfy our more basic needs, we focus on the next needs up in the hierarchy. In other words, our motivation becomes our need to satisfy our unmet needs higher up in the hierarchy beyond where we currently are.
Maslow’s theory is often represented using a pyramid, as shown below.
In the workplace, the basic needs can include a steady, secure job and a decent salary/wage. Next up are social/belonging needs. For employees, this can be translated into the need for a group with which they can associate and one that affirms and respects them. The other level on the hierarchy is esteem needs. Once you’re part of a tribe, you want a place in it. This explains the need for progression and promotion in the workplace and salary increases. Lastly, we have self-actualization. This tends to be the things we do outside the workplace. Like our hobbies, social activities, community contributions, and spiritual or self-fulfillment things.
Victor Vroom’s Expectancy Theory
Incentives also tie into the “Expectancy Theory” proposed by Victor Vroom. According to this theory, people behave or act in a certain way based on what they expect the result of that behavior to be. In essence, employees will feel encouraged to perform better if they believe that it will lead to a good performance appraisal and that this would lead to the realization of personal goals in the form of some reward.
The Theories Applied
Upon closer examination, the three theories aren’t all that different at the core. In fact, employers can leverage all three when designing incentive programs to ensure they hit on key motivational drivers:
- Economic Incentives: These involve direct financial rewards that help people meet their basic/survival needs. (This aligns with Maslow’s basic needs and Herzberg’s hygiene factors.) Consequently, the prospect of earning more will invariably motivate them to work harder or smarter up to a certain level. Employee incentive programs can leverage this by offering financial rewards like bonuses, increased profit sharing, stock options, or commission on sales.
- Social Incentives: These are designed to meet employees’ social and esteem needs, as defined by Maslow. Humans are social creatures who thrive on recognition and approval from their peers. Employee incentive programs can offer non-monetary rewards that acknowledge an employee’s hard work and achievements. Think “Employee of the Month” awards, public recognition in meetings, or features in company newsletters.
- Moral Incentives: These tap into an individual’s desire to do what is right and to contribute to a larger cause. Employers can achieve this by tying incentive programs to company goals that employees can feel good about, such as improving customer satisfaction, reducing environmental impact, increasing diversity and inclusion, or supporting charitable causes. Peer-to-Peer Micro-Bonuses can also be seen as a moral incentive because they encourage employees to support and recognize their colleagues’ good work.
Benefits of Offering Employee Incentives
As we previously stated, effective employee incentive programs are mutually beneficial. They are the best form of “scratch my back, and I’ll scratch yours” in the workplace. Above, we’ve explained how employees benefit from this arrangement. Let’s see how employers do:
- Increased Productivity: Motivated employees are more likely to put in extra effort and strive to perform at their best, leading to higher productivity levels.
- Improved Quality of Work: When employees are incentivized to meet specific performance goals, they are more likely to pay attention to details and maintain a high standard of work.
- Increased Employee Retention: Employees who feel recognized and rewarded for their work are more likely to stay with the company. This is a good thing because employee turnover can be costly. According to Gallup, replacing an employee can cost a company up to 2x the employee’s annual salary.
- Positive Workplace Culture: Incentive programs can foster a more positive and collaborative work environment, as employees feel more appreciated and valued for their contributions.
- Enhanced Employer Reputation: Companies that offer robust incentive programs can attract top talent, as they are seen as valuing and investing in their employees. Google is a perfect example of that.
What are Some Common Types of Employee Incentive Programs?
There are plenty of employee incentive programs across industries. They can range from financial incentives to non-monetary rewards. Here’s a round-up of the most common employee incentive programs:
- End-year bonuses – 33% of private employers in the US offer end-of-year bonuses. 11% of workers receive some form of end-year bonus. (24% of businesses increased bonus payouts because of COVID.)
- Profit-sharing programs – 19-23% of American firms have offered profit sharing since 1963. The amount given to each employee is often based on their salary and distributed on an annual basis. Length of service plays a factor.
- Stock Options or Equity Programs– 35% of private companies offer equity programs to employees, against 43% of public companies.
- Employee Recognition Programs – 80% of employers have a workplace employee recognition program. 91% of HR professionals believe that recognition and reward programs have a positive impact on employee retention.
- Learning and development opportunities – 58% of employers have ramped up their learning and development to fill skill gaps. 69% of companies have ramped up their skill-building post-COVID.
- Health and wellness promotion programs – 92% of worksites with 500 or more employees offer some wellness incentive. 58% of small firms offer a smoking cessation, weight loss, or other lifestyle coaching program.
- Flexible work arrangements – 80% of employers currently offer flexible work arrangements. 92% of employees can work remotely within the week.
- Retirement contributions – 88% of employers offer a 401(k) plan. 67% of private industry workers had access to employer-sponsored retirement plans in 2020.
What are the Characteristics of Good Employee Incentive Programs?
Creating an effective employee incentive program is a delicate art. Here are the key characteristics that successful programs tend to have in common:
- Alignment with Company Goals: Employee incentives that work are designed to promote behaviors and actions that support the company’s core objectives and values. They allow employees to see how the program will help them achieve the main mission they joined the company for.
- Clear and Understandable: All your employees should easily understand the incentive program. Define the eligibility criteria. Explain what employees need to do to earn the reward, how it is calculated, and when they will receive it.
- Meaningful Rewards: People are more motivated to work harder if they believe they will achieve something they’ve always wanted. That’s why valuable and meaningful incentives, like financial rewards and opportunities for growth, always bring better results.
- Fair and Transparent: Good employee incentives programs are fair, with the entire team having an equal opportunity to earn rewards. Their criteria for earning rewards are objective and transparent to avoid perceptions of favoritism or bias.
- Flexible and Adaptable: Workforce dynamics change constantly. New people come in as others leave. An employee incentive program should be flexible enough to adapt to changing business needs, employee preferences, and market conditions. This could mean periodically updating the program or having different types of rewards available.
- Timely Rewards: Motivate employees by offering rewards on time. Delaying rewards diminishes their impact and may end up demotivating employees.
What are the Most Popular Employee Incentive Programs Today?
COVID-19 woke most of us up and made us reevaluate our priorities and career choices. Confronted with the fragility of life, many people began questioning the meaning and purpose of their work. This introspective shift contributed significantly to the Great Resignation of 2021/2022, and the aftereffects are still being felt.
According to a Pew Research study, 63% of employees who quit their job in 2021 cited low pay. 63% left because there were no growth opportunities. 57% left because they felt disrespected at work. In a Flexjobs study, 62% of employees cited a toxic work culture as the main reason they left. 49% of respondents left because their former workplace lacked a healthy work-life balance.
In response to the evolving needs, new types of monetary and non-monetary incentive programs designed to meet the unique needs of the modern workforce have emerged. Here are some of the most popular employee incentive ideas today:
1. Remote work and flexible schedules
Telecommuting, 4-day work weeks, and flexible schedules are some incentives companies are offering to help employees maintain a healthy work-life balance. According to the International Labor Organization, “Companies that implement work–life balance policies benefit from increased retention of current employees, improved recruitment, lower rates of absenteeism and higher productivity.”
2. Social responsibility programs
Employees who believe their jobs help them fulfill a life purpose are reportedly 41% more engaged in their work. Following global social unrest triggered by incidents like George Floyd’s murder, social responsibility has emerged as a critical factor in employee motivation and engagement. According to a Glassdoor survey, 77% of employees consider their prospective employer’s culture to confirm that the roles align with their values and contribute positively to society. Actively engaging in social causes (like sustainability initiatives, community outreach projects, or diversity and inclusion efforts) can enhance employee loyalty and boost retention.
3. Personal development programs
The 4th industrial revolution, characterized by rapid technological advancements, demands rigorous upskilling and reskilling to fill the digital skills gap. A Korn Ferry study warns that failure to do so could result in 85 million jobs going unfilled by 2030. As our world becomes more digitized, employers are offering continuous learning opportunities to help employees reorient themselves to the new world. Career development opportunities also save employers acquisition and training costs for new hires.
4. Employee recognition programs
Recognition has always been a powerful motivator. For example, a simple “thank you” can make employees feel valued. This can then boost employee morale and increase employee engagement. According to Gallup, “employees who get the right amount of recognition are 30% less likely to experience burnout.”
Today, many companies are going beyond traditional “Employee of the Month” or annual cash reward. Instead, they’re creating structured recognition programs that regularly highlight and reward loyal employees who exemplify the company’s values and goals. Recognizing employees boosts employee satisfaction and also fosters a culture of appreciation and respect within the organization.
5. Health and Wellness Incentives
Employee health and wellness programs have become a priority as people become more in tune with their mental and physical well-being. According to a Willis Towers Watson survey, 67% of employers plan to prioritize employee wellness over the next three years. Additionally, 69% of employers have added a virtual EAP to address mental health issues and incentivize employees to take better care of themselves.
6. Tuition reimbursement programs
Continuous learning is vital in today’s business landscape. As tech advances, there are new and helpful skills to learn every day. Unfortunately, tuition costs can be prohibitive. And even if the employee was willing to save some money before enrolling for the courses, it’s doubtful that the skill will still be relevant when they’re ready. Recognizing this, many organizations are offering tuition reimbursement programs to incentivize employees to further their education and acquire new skills relevant to their job.
7. Autonomy and empowerment
Providing employees greater autonomy in their roles is another key incentive program gaining traction in recent months. In fact, nearly 50% of workers say they would forego a 20% raise for more control over their work. As a result of the remote work shift during the COVID-19 lockdowns, many employees had to adapt to working independently, and a large number found that they thrived in this environment. Employees with more autonomy have higher levels of job satisfaction and are more committed to their work.
Closing thoughts
The employee incentive landscape is evolving rapidly to meet the changing needs of the modern workforce. From fostering work-life balance with flexible schedules to promoting purposeful work through social responsibility programs, today’s most popular incentive programs are those that resonate with employees’ values and aspirations.
Respect people for who they are and what they can achieve. Give them autonomy and control. Give them meaningful responsibility, and they will live up to it. Communicate clearly. Frequently survey your demographics and collect employee feedback if you want to retain employees.
To truly make your incentive program stand out, consider setting up a consultation with an employee incentives expert. Incentfit can provide personalized advice to align your incentives with your unique business culture and goals, empowering your team to reach new heights of engagement, satisfaction, and productivity.