Performance Incentives for Employees: Motivating and Rewarding Excellence

As a leader, it’s vital that you motivate your employees to perform at their best. So how do you promote a good work ethic in your organization? Read on to find out how performance incentives for employees can help to boost your business. 

From the Battle for Talent, to employee burnout, to the cost of living crises and the rise of AI - organizations across the globe are facing a period of unprecedented change. But among the challenges leaders are facing right now, there’s one issue that’s risen to the top of the workplace agenda - and that’s engagement. 

Or, to put it more accurately, the loss of it. 

During recent years there’s been a worrying trend in employee engagement. In fact, according to Gallup, it’s been in steady decline with engagement rates falling from 36% in 2020 to 34% in 2021, 32% in 2022 and 31% in 2023.  

That’s bad news for businesses because disengagement leads to low morale, slumping productivity and leading to high turnover rates. Worst of all, it has a negative impact on your bottom line with unhappy workers estimated to cost up to $550 billion per year in the U.S. alone. 

What are performance incentives for employees?

Let’s start with the basics by defining precisely what we mean by “incentives”. 

An incentive is something that you use to motivate someone to take or avoid a specific action. The role of the incentive is to encourage certain behaviours or outcomes. Take your morning coffee run for example. Does your favourite Java spot have one of those rewards cards that gives you a free cup of Joe after every tenth visit? That’s an example of an incentive, they’re encouraging you to come back to their establishment and buy your morning pick-me-up from them rather than one of their competitors. 

When it comes to incentives for employees, it’s a similar story. 

Employee incentives are rewards or privileges that you can use to motivate your team to meet business objectives and perform to the best of their abilities. For many employers, performance incentives for employees are used to help reinforce company culture, stimulate performance, and inspire productivity. 

Exactly what form these incentives take depends on the individual employer. Some organizations offer cash incentives like bonuses or profit-share schemes. Others provide non-monetary rewards like swag, gift cards or even money-can’t-buy rewards like paid vacation or unique gifts. 

Performance by numbers: 5 stats that show the power of employee incentives

1. Highly engaged teams boost company profitability by 21%. Gallup

2. Motivated workers can raise sales by up to 37%. Harvard Business Review. 

3. Companies that use performance incentives for employees report higher levels of employee engagement (89%), retention (87%), and loyalty (85%) compared to those that do not use them. Incentive Research Foundation. 

4. Companies that incentivize their employees have 31% less turnover. Deloitte.

5. 79% of millennials said an increase in rewards would make them more loyal to their employer. SHRM

What are the benefits of performance incentives for employees? 

Performance incentives help to keep your employees engaged, and that’s important because employee engagement impacts just about every aspect of your organization. 

If you engage your employees, you can expect to experience a host of benefits. Engaged employees are more productive, they’re more creative, they work harder, they’re less likely to leave and they’re more likely to recommend you as an employer. 

And that’s just for starters.

So what are some of the benefits of engaging employees through performance incentives? 

1. Rocket-propel your productivity 

Of course, in an ideal world, people would come into work every day bright-eyed and bushy-tailed - ready to do their very best to help your company succeed. Unfortunately in the real world, people often need a little encouragement. So if you want to encourage excellence in your employees and motivate them to do their best - you’re going to have to incentivize them. 

The good news, however, is that incentivizing your staff can ignite their productivity. According to one survey, 79% of employees say that recognition makes them work harder while 78% are more productive after being rewarded. That means rewards and employee incentives can be the carrot that employers dangle to motivate their people to be more productive. And when your people are more productive that means your business is more likely to achieve its goals, ultimately boosting your bottom line.

2. Build a thriving culture

Incentives drive behaviour, and behaviour drives culture. That means that if you align your incentives with your company’s values, you can create a virtuous cycle that constantly reinforces your culture. 

Of course, everyone talks about building a great company culture, but the problem is that in reality, company cultures are hard to build. Sure, you can write your values down in your employee handbook or produce a video that sits on your website, but the truth is that cultures often arise out of a mishmash of different incentives, personalities and leadership styles. Or to put it a different way, cultures are often driven by intangibles. 

That’s why incentives are so appealing.

By incentivizing certain behaviours you can build whatever kind of culture you want. Think of it this way, instead of rewarding your top sellers or your highest achievers, what if you incentivized behaviour that matched your company values or ethics? Maybe it’s going above and beyond to deliver excellent customer service, operating with integrity or supporting their colleagues - but by incentivizing certain desirable behaviours you have a tangible means with which to nurture your company culture. 

3. Up your retention rates

If your employees are engaged then they’re less likely to be absent from work. They’re also a lot more likely to stick around in their roles. In fact, according to Gallup, engaged employees are 59% less likely to leave their roles in the next 12 months. 

Performance incentives are imperative because they help your employees to see how they impact the overall organization. After all, no one wants to be another cog in the machine. They want to have a purpose, to know that what they are doing matters. They also want to know that if they work hard, they will get rewarded for their actions. Performance incentives help your people to see the importance of their efforts. By rewarding them for achieving certain goals you’re tangibly demonstrating how much you value that work. When you invest in them, they in turn will invest in you.

The benefits for businesses are clear. No one wants to lose employees. Especially as the estimated cost of replacing a skilled employee is as much as 30% of their first-year earnings. 

4. Combat the quiet quitters

You’ve probably heard of “Quiet Quitting” by now. The phenomenon has spread virally across social media during recent months as millions of people have admitted to not going above and beyond to succeed in their jobs. Instead, they’re doing just enough to get by. Driven by burnout, disengagement and disenfranchisement - it’s estimated that quiet quitters make up about 50% of the U.S. workforce. 

For organizations, it’s a very real problem. One that, like low engagement levels, can take a toll on just about every aspect of your business. Whether it’s improving communication, increasing accountability or addressing issues in your company culture, there are many things you can do to tackle quiet quitting. But if you’re trying to combat quiet quitting then performance incentives might be your most effective solution. 

Introducing a program that encourages your people to go above and beyond, then rewards those who achieve just that - could provide the shot in the arm you need to jumpstart your engagement levels. 

5. Rev up recruitment

Performance incentives won't just help you to get the most out of your current employees, it can also help you to attract new ones too. During the current Battle for Talent where employers are having to work harder than ever to attract the very best talent, incentives can be a powerful recruitment tool. That’s especially true in the current climate where employees are increasingly prioritizing incentives like perks, rewards and work/life balance over things like salaries and corner offices. 

Incentives can also help to attract younger workers, something that’s especially valuable at a time when CEOs are becoming increasingly concerned about the next generation of talent. 

What really motivates your employees? 

When it comes to performance incentives, a big budget doesn’t necessarily equal a big impact.

Take Google, the tech giant that’s regularly recognized as one of the world’s best places to work, who have found that money alone doesn’t motivate staff. In fact, the company discovered that cash incentives actually made people less happy while rewards like gifts or experiences were far more effective at incentivizing its people.

You see, we’re all hardwired to respond to recognition. It’s a basic human need. One that causes a physiological reaction that releases dopamine into our brains. Dopamine, for those of you who don't have a textbook handy, is often called the “happy hormone” because of the fact that it stimulates the parts of the brain that create positive emotions like satisfaction and enjoyment. 

“Recognition is a short-term need that has to be satisfied on an ongoing basis - weekly, maybe daily.”

-Jim Harter, Chief Scientist at Gallup.

The thing is that the value of a reward doesn’t necessarily correlate with its psychological impact, instead, it’s the act itself that’s the primary factor in our psychological response. So it turns out that what really motivates your staff is not money or high-value incentives, it’s merely the fact that you’ve chosen to reward them in the first place. 

But there is a secret weapon when it comes to motivating employees, and that’s frequency. According to researchers, performance incentives work best when the reward is immediate. This increases intrinsic motivation by linking an activity and its goal. In layman’s terms: Employees who are rewarded more frequently are motivated to achieve the tasks they associate those awards with. 

10 performance incentive ideas to keep your employees engaged 

If you're looking to explore new incentives to motivate your employees, you may want to consider some of the bonus and rewards schemes that you can put in place. Whether for teams or individuals, here are a few ideas to get you started: 

Incentive compensation

If an employee achieves their performance objectives, you may decide to offer them incentive compensation in addition to their existing base salary. This amount payable is usually outlined in an employee’s contract at the beginning of their employment. 

Typically, 65% of employees prefer incentive bonuses that have a direct correlation to performance, as it helps them gauge what is expected of them. That means that incentive compensation can be a great way of setting clear objectives and also monitoring how effectively those objectives are being met through performance tracking. 

Annual incentives

These incentives are tied to the overall performance of a company throughout the course of a year. Sometimes known as a “profit share” the size of the bonus varies depending on how successful (or not) the company has been. Typically the reason why organizations award these bonuses annually is as a retention tool - because employees will typically stick around longer in order to receive their bonus. But the same structure also helps to keep employees incentivized to do their best throughout the year.

Referral bonuses

Referral bonuses can be used to motivate employees to bring new clients and customers into your business. Again your people are often your biggest champions and can play an important goal in driving new business. A well-placed incentive can be a great motivator to encourage them to tap into their own networks in order to help grow your operation. 

Sales commissions, or variable pay

Unlike guaranteed compensation that comes in the form of an annual salary, commission or variable pay is instead earned through certain actions like sales or through meeting targets. A common site in sales roles and companies tend to use them because they work. People who know they can earn a commission by increasing revenue, boosting productivity or delivering objectives are going to be far more motivated to achieve their aims. They will be more engaged in their work, more motivated to come in and perform their best and more likely to stay in their roles for longer. 

Holiday bonuses

Traditionally during the holiday season, business owners offer a holiday bonus as a “thank you” for their employees’ hard work during the calendar year. Typically offered around Christmas, around 52% of all businesses say that they offer this kind of bonus. Offered either as a set amount or a percentage of salary, they are often appreciated by employees as they provide an extra financial boost during an especially expensive period. 

Hiring bonuses

Many employers know that their best advocates are the people who work for them. That’s why they may decide to offer referral bonuses to current employees who refer great candidates for open roles. Similarly to retention bonuses these are typically not paid out until the new employee has worked at the company for a certain amount of time. 

Profit-sharing plans

Put simply, the idea behind profit-sharing plans is “if we do well, you do well”. They are built around the concept of shared success and the idea that if your people work hard to help the company succeed then they will reap some of those rewards. This encourages them to perform at their best, rather than simply clocking in and clocking out. 

But the reverse is also true. That’s because employees whose compensation is linked to company performance also take on a share of the risk, knowing that if the company performs poorly they will pay the price. 

It’s a mutual relationship that helps people to see the value of their roles. 

Team lunches

Not all incentives have to involve commissions or compensation - often they don't even need to involve cash at all. They say the way to our hearts is through our stomachs and that can really ring true with employee incentives. At the smaller end of the spectrum, laying on a free lunch or a handful of pizzas as a reward is a low-cost reward that can make a big impact. But on a personal level, you can also use food to create a unique experience. Perhaps it’s a voucher for an employee’s favorite restaurant or a gift card for their regular coffee spot. You could even elevate the experience by offering an all-expenses paid champagne lunch at the city’s finest establishment. Whatever your appetite however food is a fantastic way to incentivize your employees.  

Activities 

Incentives that reward whole teams with activities are not only effective at encouraging individuals but they can also help to increase team bonding. It could be something as simple as a fully paid team night out, or something a little more creative like a paintballing experience or an art class - but whatever you choose team bonuses can serve a valuable dual purpose. 

If you do want to incentivize individuals then you can take a personal approach to make your reward even more rewarding. Do they like sports? If so, offer them tickets to see their favorite team. Are they into travel? Perhaps you can offer to pay for an excursion on their next trip. The opportunities are endless. But the joy of this approach is not just the variety it offers but the opportunity to show your people that you recognize them as individuals. 

Peer-to-peer recognition 

Traditionally incentivizing employees has been the responsibility of managers and supervisors, who hand out positive feedback and rewards as part of formal performance reviews. But what if motivation didn't have to be so formal? And what if it wasn't gate kept by leaders, but rather something that everyone had access to? 

That’s the idea behind peer-to-peer, a form of social feedback that democratizes recognition. This incredibly effective technique empowers everyone, not just managers, to recognize each others’ achievements. It may sound like a small change but it can add up to make a big difference. That’s because peer recognition amplifies the emotional response that people feel when they’re being rewarded. So instead of receiving recognition from an individual, they’re getting it from an entire team.

In practice, this kind of incentive could work as an ongoing culture tool where employees can periodically recognize the person who has embodied the company’s values. It can even work as a kind of MVP award, where the employees themselves help to identify the company’s top performers across metrics other than sales. 

How to start your performance incentive program

By now you’re hopefully sold on the benefits of employee incentives and ready to kickstart your own program. So what next? Here are a few steps to take to kickstart your employee incentives.

1. Take stock

Before anything else you should take stock of any incentive activity that you might already have in place. This could be in the form of formal incentives like commission schemes or annual bonuses. They might be altogether more ad-hoc with certain leaders pioneering their own informal initiatives. Either way, by taking stock of what is already in place you can see if any of this activity is working (or not) and whether you can scale up existing schemes rather than starting from scratch. 

2. Speak to HR

Ask your HR team about best practices and lean on their experience to find what incentives are right for your organization. Your HR team will be key in rolling out any program and they will also play a vital role in connecting it to things like company culture, retention and recruitment - so you will want their strategic input from day one. 

3. And your employees

It’s not just your leadership team who should have a say in what incentives your company offers - you should also ask the people that you’re going to be incentivizing. Everyone is different and so what motivates us differs from person to person too. By conducting a quick pulse survey you can find out exactly what would make your people feel more engaged so that you can specifically tailor your efforts to meet their needs. 

4. Ask for help 

The good news is that you don’t have to go it alone when it comes to employee incentives. Today there are a wealth of tools and technologies that can help to make motivating your people easier than ever. Take Bucketlist for example. Our best-in-class platform makes it easy and fun for employees and managers to recognize and reward one another for milestones, achievements, and a job well done.

5. Communicate, communicate, communicate 

It doesn't matter how good your incentive program may be, if you don’t communicate it effectively then it’s not going to be a success. Internal communication is vital to generating buy-in from your people, but also to help generate the kind of motivation levels that you ultimately want your incentives to deliver. Work alongside HR and internal comms teams to make sure that you’re properly communicating your schemes and publicizing the rewards on offer. This will keep your employees informed and engaged. 

Whether you’re a small business or a world-spanning organization, incentives can have a big impact. Think about the benefits that having motivated and engaged employees could have. Think of the productivity, the teamwork, the recruitment and the retention. Think of the smiles on people’s faces and the targets your company is regularly reaching, if not surpassing. 

The potential is there, you’re just going to need to work a little to coax it out of your employees and tap into their full potential.