“Employers use incentives to promote a particular behavior or performance that they believe is necessary for the organization’s success,” explains Susan Heathfield, a management and organization development consultant.1 Software companies, for example, will frequently provide weekly employee lunches to promote teamwork and celebrate progress toward key goals, Heathfield says.
Besides bonuses and cash rewards, other common incentives include extra days off, VIP parking, uniquely designed T-shirts, and hard-to-get tickets to popular sporting and cultural events. But like free lunches, these and other perks are most effective when they’re offered as part of a structured incentive program designed to align employee actions with a business objective. Research has found that such employee incentive programs clearly raise employee performance.2
“An incentive program isn't just a matter of throwing money at people,” notes Chad Tisonik, a practice leader at risk advisory firm HNI. “While employees might respond to this in the short-term, it won't have a long-term impact on changing employee behavior. Effective programs take careful design to be successful in rooting out the negative behaviors that hurt the company culture and morale.”3
Incentive Programs: More Than Just Rewards
When companies offer incentives merely as rewards for completing tasks, they fail to truly alter employee behaviors, agrees Jurgen Appelo, author of the books Managing for Happiness and Management 3.0. Appelo offers this anecdote: “In a Soviet nail factory, leaders wanted to improve the performance of workers. When they paid workers for the total weight of nails produced, all nails became bigger. When they paid workers for the number of nails produced, all nails became smaller.”4
Many businesses have first-hand experience with incentive schemes that send employees off on a tangent, or even backfire. This shouldn’t come as a surprise, Appelo says, given that most managers use rewards incorrectly. To be truly effective, he observes, employee incentive programs need to follow these five rules:
1. Don't promise rewards in advance. Instead, give them at unexpected times, so that employees remain focused on the task at hand and not on earning the reward.
2. Keep incentives small. A manager can’t always prevent staffers from anticipating a reward, but that won’t significantly misdirect their behavior, as long as the reward is small relative to their overall compensation.
3. Reward continuously, not just once. Every day can be a day to celebrate something. Such acknowledgements make workers feel valued and boost morale.
4. Reward publicly, not privately. All employees should know what work is appreciated and why.
5. Reward behaviors as well as outcomes. To bring about lasting changes, companies need to encourage new behaviors. They can achieve outcomes through shortcuts, but it takes hard work and persistent effort to alter employee behaviors.
In line with those guidelines, Julie Feece, Vice President for North America at RPG Card Services, a provider of corporate gift card programs, recommends keeping incentive programs simple, so that they are easily understood by the employees they’re intended to motivate and kept well within their reach.
Try Diversifying Rewards in Incentive Programs
Feece also suggests offering a wide variety of incentives for employees to choose from. “One of the most common mistakes with incentive programs is trying to use the same incentive for all people,” she says. “If the offered reward doesn’t appeal to a certain person, he might not be motivated to earn it.”5
There are three simple ways to diversify incentives, according to Skyler Rogers, a content marketing specialist with YouEarnedIt, a developer of an employee engagement and performance platform:6
1. Offer more than just monetary rewards. Adding perks such as spa days and restaurant meals makes an incentive program more effective, Rogers says. Recent studies find that the combination of cash and non-cash rewards do more to motivate employees and encourage new behaviors than solely offering one or the other.7
2. Add variety by offering incentive options such as gift cards for local businesses, charitable donations, or the ability to pool individual rewards for a team experience—like an outing to a rock concert. Since many factors affect employee motivation, a company’s incentives should reflect that fact, Rogers says.
3. Tie rewards to spontaneous recognition. Rogers calls recognition “a power tool” when it comes to boosting employee motivation and encouraging new behaviors. And unlike a trophy or pre-determined bonus, spontaneous recognition for great work isn’t something an employee can anticipate.
