A study by Willis Towers Watson found that only 20% of employers in North America actually believe merit increases are effective in driving high performance.

Traditionally money was seen as the main incentive used to motivate employees. Higher productivity results in higher salaries and bonuses. For companies, it’s been used as the main tool to attract, retain and engage their people. Today we’ve learned that the key to motivation is much more complex than that.

Employee engagement is not about the financial rewards you provide, it’s about the intrinsic motivators that drive people at your company. Say your business hits hard times and you can’t provide pay raises that meet the standards you had set in the past.

Employees who are there for the financial rewards will be the first to start looking for new jobs. Interestingly, Gallup found that 64% of millennials who are engaged at work stated they would not leave their job, even if the job market improves.

So, in a time where offering incentives might not feel like a high priority, you might want to reconsider. We’ll learn why employee incentive initiatives can be the key to retaining your top talent. We’ll also talk about how incentives can help drive performance and motivation to keep your organization one step ahead.

First, let’s break down what we mean by incentives for employees. 

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Incentives for employees can be any reward, program, or recognition in the workplace that helps to motivate employees. For many employers, incentives for employees help reinforce positive behaviors, stimulate employee performance, and inspire productivity. 

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Research shows that incentives for employees do have a positive impact on employee performance, job satisfaction, and organizational commitment. In other words, employee incentives can be levers to help improve employee retention. But it can also help incentivize your employees to reach their goals while also improving their employee experience. 

Soon, we’ll get into more benefits around starting an employee incentive program. But first, let’s understand the different types of employee incentives. 

There are plenty of types of employee incentives. We’ve rounded up a list of eleven employee incentives that are commonly used in the workplace: 

On its face, it looks like employee incentives can amount to a big expense for organizations. And while it’s true that some organizations may spend money on their incentive programs, it’s also true that employers will reap the benefits. Here are six benefits of using employee incentives at your organization: 

Now that we understand what defines employee incentives, let’s look at some examples. 

Financial reward programs are probably one of the most well-known employee incentives. For example, some employers may use a profit-sharing plan where if workers achieve certain milestones, their shares increase. 

Other businesses may set specific goals, like sales quotas, where if achieved, workers receive cash bonuses or other financial rewards. 

I worked at an organization that offered company-wide monetary incentives. If our organization hit our company goals for the year, each employee received a certain amount of stock grants. It helped to keep employees focused on goals and motivated to reach those goals. 

Employee recognition goes further than you may think. While it might not seem like an employee incentive, recognition wields incredible power when it comes to engagement and productivity. 

At BetterUp, we recognize employees in every all-company meeting. Employees peer nominate their colleagues who are living our high-impact behaviors and core values. As a result, our leadership team evaluates all nominations and publicly recognizes top performers. 

Not only does it help to recognize some of our best employees, but it also feels good. It’s a great way to get employees engaged in recognizing some of their own peers and colleagues. It also contributes to the company culture. 

Hard work and good work are worth rewarding. And when your employees put in the good work to better themselves, your business reaps the benefits. 

At BetterUp, every employee receives a yearly stipend of $1,000 USD for learning and development. I’ve been able to use my stipend on books, workshops, and courses that help me develop and sharpen my skills. 

Other organizations, like my last company, offer professional development courses once you reach a certain level in the organization. For example, after I was promoted into a role, I was then given access to a slew of internal learning and development opportunities. Ask your human resources team if there are any professional development employee incentive programs. 

Another type of employee incentive program is wellness and work-life balance. 

Some work environments promote employee well-being through initiatives such as gym memberships, wellness discounts, and other programs. 

At BetterUp, we have Inner Work® Days. On a few designated days per fiscal year, our entire company shuts down. We dedicate these days off to Inner Work®, the practice of looking inward and doing something for ourselves. 

I’ve spent some Inner Work® Days hiking and getting out in nature. But I’ve also spent other Inner Work® Days reading, learning something new, or simply just recharging my batteries. 

In his TEDTalk “What makes us feel good about our work”, behavioral economist Dan Ariely discusses an experiment in which he had participants put together lego figures for a diminishing amount of money. However, in one group, each time someone finished a figure it would be placed under the table. In the second group, each time someone finished a figure an experimenter would immediately disassemble it.

While being offered the same amount of money, the second group stopped making figures at a much faster rate. Even if nothing was being done with the first group’s lego figures, the act of disassembling them was an extreme demotivator for the second group.

The reason is that aside from money, people need to feel a sense of purpose in what they’re doing to actually feel motivated. Furthermore, having the number of figures add up could also give the first group a sense of progress.

Similarly, PWC conducted a survey of employees asking them how much extra time they would work if:

Interestingly, they found that about 30% would work up to 150 minutes, even if they stopped receiving a bonus after 90 minutes. In both cases, we see that people are largely impacted by the purpose behind their work and their ability to see progress or improvement.

Douglas McGregor’s XY Theory was one of the first to make the distinction between the use of extrinsic versus intrinsic motivators. In his 1960 book The Human Side of Enterprise, he outlined two management styles that require different types of motivators.

Theory X managers take a carrot and stick approach to motivation believing that humans have an inherent tendency to avoid work. Monetary rewards are thus the main tool used to retain and push employees to achieve more.

Theory Y managers, on the other hand, believe that a sense of ownership and autonomy in reaching company objectives can drive an inherent form of motivation.

Humans receive natural satisfaction from personal growth and improvement. Taking McGregor’s Y Theory into account, it becomes clear that to motivate employees, managers must provide an environment that can fuse their desire for constant professional development and achievement with a strong sense of purpose and room for self-direction.

These factors have encouraged managers to break the connection between performance and pay. Instead, it places an emphasis on the work environment that encourages Y Theory management objectives. This has created a paradigm shift away from annual performance reviews based on X Theory incentives and towards a mission-driven environment that fosters creativity, ownership, and self-direction.

If you’re not sure where to start, we can help you get started. Here are five steps to kickstart an employee incentive program at your organization. 

You might have employee incentive programs in place and not yet know it. Or, it could be possible that some teams or leaders are already spearheading initiatives that are working well within their departments. 

Do an audit to see what sort of offerings already exist. Where can you scale offerings to launch company-wide? What sort of programs can you potentially consolidate? 

Your HR team will be key players in rolling out employee incentive programs. Oftentimes, it’s HR that will lead these sorts of programs for employees, whether it’s a part of the employee experience or culture programs. 

So, lean on the experts. What are high-impact perks that they’ve seen work well? What are low-lift ways to start implementing some of these perks, like peer recognition awards? 

If you have any budget set aside for employee incentives, you’ll want to closely examine how you’re spending your dollars. 

For example, monetary and financial incentives will obviously need extra budget attention. But other programs — like recognition awards — might simply be free. 

Work with HR and finance to allocate your budget appropriately. It’s also great to hear from peers and others in your industry about what’s working well for them. 

You might already be conducting employee engagement surveys. Or you might have listening circles with employees or managers to gather feedback about incentive programs. 

Whatever sort of feedback mechanism you use, gather feedback. Your employees might also have some great employee incentive ideas. Some companies even allow employees to vote on their favorite programs. 

Ask any internal communication professional. An internal program like an employee incentive plan needs communication support. Your employees won’t know what sort of reward systems exist if you don’t communicate with them. 

Work alongside your HR professionals to make sure you’re publicizing the benefits and incentive offerings available. It could also help team members be more informed and engaged in the overall program. 

Of course, like any other sort of employee program, it helps to have some best practices. Here are five things to keep in mind when offering incentives for employees. 

For example, if you’re allowing employees to participate in profit shares, what sort of rules or key milestones need to be achieved? Can full-time employees participate as well as part-time employees? What about interns, contractors, etc.? 

Think about how your core values can help guide what incentives you offer. It’s great to help reinforce your company culture, too. 

For example, some employees might not be using a certain incentive. Ask them why. What barriers are they experiencing? What sort of program might be better received? 

For example, let’s say an employee just nailed a customer presentation that landed in a big sales deal. If that employee was recognized two quarters down the line, it might feel like the moment has passed. Make sure recognition is timely. 

Whether you’re a small business or a big organization, incentives have an impact. Think about ways you can boost employee morale, teamwork, and performance with employee incentives.