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How to Build Employee Incentive Programs that Work

Editor’s note: This blog post is written by Darren Perucci and was originally published on the BambooHR blog. Why do your employees do what they do? It’s not an easy question to answer, sometimes not even for the employees in question. Yet understanding the many factors that motivate your employees is the first step to implementing effective employee incentive programs in your organization.

At the most basic level, people tend to divide these factors into two different categories: positive reinforcement (incentives) and negative reinforcement (disincentives). The traditional wisdom is that giving your employees the right balance of incentives and disincentives is the key to getting the most from your employees. Stephen R. Covey called this view “the great jackass theory of human motivation—carrot and stick.”

He has a point. While the workers of the past may have been seen as little more than beasts of burden carrying industry on their backs, success in the modern economy requires employees with greater independence and decision-making skills. And with such low unemployment in today’s economy, employees don’t have to take punishment from your organization—they can go out and find a place that appreciates and rewards their hard work the way they want.

An effective employee incentive program sends employees a clear message that your organization understands what truly motivates them to do their best work and is willing to provide it.

What Makes Employee Incentive Programs Work?

If you’ve followed this blog or attended a BambooHR webinar or two, you’ve likely heard of Herzberg’s two-factor theory. When psychologist Frederick Herzberg explored the line between carrot and stick, he found that certain workplace conditions reduce dissatisfaction to neutral, while other conditions build on that foundation and increase satisfaction.

Meeting employees’ basic needs reduces dissatisfaction. These concerns include appropriate compensation, workplace safety, and benefits. To increase employee satisfaction, a workplace needs to address higher concerns like work-life balance, challenging and purposeful work, and coworker relationships.

Understanding the difference between satisfaction and dissatisfaction highlights some of the difficulties of developing employee incentive programs that work. If adding compensation reduces dissatisfaction but doesn’t increase long-term satisfaction, then what effect will a cash-based incentive program have on your employees? If employees come to see cash incentives as part of their total compensation package, then instead of feeling satisfaction when they receive an incentive, they’ll feel dissatisfied if they don’t.

This isn’t to say that employees don’t appreciate cash incentives. A BambooHR study found that monetary bonuses were the preferred reward for accomplishments. But the study also found that, when asked what signified a successful employee, employees listed “consistently contributes to successful teams” as the top indicator. When it comes to creating meaningful moments for employees, building employee recognition programs is just as important as handing out monetary rewards, if not more important.

Employee Incentive Program Considerations

As you consider different types of employee incentive programs, it’s important to think it through and remove any unintended consequences. Here are a few to watch out for:

  • Perverse Incentives: Avoid situations where strategies for earning a reward go against the benefits of employee incentive programs. An obvious example of this is when sales teams offer an inordinate amount of discounts to increase sales numbers and receive more rewards, but the overall performance of the organization is harmed.
  • Unhealthy Competition: Your incentive program needs to preserve teamwork in your organization. Rewarding individuals instead of groups may lead to unhealthy behaviors, from passively withholding help to outright sabotage or cheating.
  • Rewarding Luck: Earning a reward should be based on actions that are in the employee’s control. If employees feel that their efforts won’t be recognized or rewarded without luck or popularity, it can discourage them from trying.
  • Ill-defined Goals: If the goals of your employee incentive programs aren’t tied to objective measurements, then it increases the risk of employees perceiving them as either arbitrary or proof of favoritism toward certain employees or departments.

Examples of Successful Employee Incentive Programs

With these criteria in mind, what does it take to make a successful employee incentive program? Here are a few examples:

At BambooHR, we have an interesting approach to sales. Instead of individual sales employees competing for a commission, we have salaried sales employees working together on teams. And while the teams compete with each other, each employee has teammates to collaborate with, providing the opportunity to learn from each other.

Other employee incentive programs opt for experiences or company merchandise instead of straight cash bonuses. Giving away a comfortable branded t-shirt or a fun mug can provide a daily reminder of your organization’s investment in your employees.

You can also give employees the chance to earn experiences and perks, such as additional time off or a company-sponsored lunch. These rewards are more likely to be perceived as rewards as they tie to more motivational concerns. But it’s important to remember that incentives need to supplement these factors of your work, not act as the only source of these experiences.

Should We Do an Employee Incentive Program?

Employee incentive programs work best when they support your organization’s mission, vision, and values. Encouraging employees to achieve these objectives with targeted incentives can make your workplace a more satisfying place to be. Give it a try and let us know how it goes!

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Chalyse MendozaFarrahCarolin SpencerKendraSherida Hawthorne Recent comment authors
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Roberto Cortes
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Roberto Cortes

great article! I think that incentive programs have to be also reviewed by generation and interests of the type of jobs/employees you might have

Christopher Thorpe
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Christopher Thorpe

Interesting article. I think it is helpful when employees have choices when it comes to incentives. What works for one person might not be the best for another

Christopher Funk
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Christopher Funk

Our company is moving toward a more system-wide goal approach and less of an individual goal approach.

Farrah
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Farrah

This is a great approach for smaller companies, but the first year can be difficult for employees to adjust

Julie
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Julie

A lot of wonderful takeaways from this article!

Jenny Schmidt
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Jenny Schmidt

I think having a individual approach to incentives is best because what may motivate one person may not motivate the next. On the flip side, this can also be a burden depending on how incentives are managed.

Sherida Hawthorne
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Sherida Hawthorne

Very interesting concept. I am already thinking about areas and ways we could take this approach at my workplace

Kendra
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Kendra

We are working towards team or company wide incentives for non sales positions. Then, the whole company is rewarded for meeting or exceeding goals. I do think that for the non monetary incentives, they need to be individualized. What may motivate one person might not work for another person.

Carolin Spencer
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Carolin Spencer

Great article! Incentives and recognition programs definitely need to be tailored to the situation and support the mission and values of the organization.

Chalyse Mendoza
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Chalyse Mendoza

Definitely an interesting article. I agree with the other comments that it can be beneficial to give employees options so they can choose the incentive that best meets their needs. I agree with the importance of considering the unintended consequences and the impact of not earning an expected incentive could have on an employee’s overall satisfaction.

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