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How to Build Employee Incentive Programs that Work

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.


Download the BambooHR ebook 13 Ways to Get Rewards and Recognition Right


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!

BambooHR is the #1 HR software for small and medium-sized businesses. We set you free from spreadsheets so you can do great work.

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