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Check out our weekly blog posts and see the latest news and discussions happening in the HR world of business.

Employee Incentives: Good or Bad?

One of the most appealing parts of any compensation program is all the perks that the company can provide. One such benefit that has been shown to really catch the interest of employees is that of incentive programs. But what exactly are they and what are the advantages and disadvantages of such a system? Also, in this fragile economy, how much is this going to cost you?!

To start with the basics, employee incentive programs are any program designed to provide your employees with recognition and appreciation. The programs themselves can take many forms, with companies working to figure out what is most appropriate and appealing to their employees and fashioning that into a rewards system. Studies have shown that such programs can help boost productivity, reduce employee turnover, and even help attract new talent to your company. Examples of reward opportunities typically fall into two buckets, according to the fine folks over at Deloitte. On one side, you’ve got the praise and recognition, which can include public recognition, such as employee of the month programs or a weekly email spotlighting a recent job well done, or private praise such as an email or a conversation with an employee about their top-tier performance. The second bucket, meanwhile, focuses on token and monetary rewards, such as bonuses, raises, or other tangible gifts. 

The advantages of these programs include: 

  • Rewarding employees in the moment: If an employee closes on a huge sale or completes a giant project mere weeks after you finish their annual review, is that achievement going to be front of mind when you come to write next year’s appraisal in 11 long months? And, more to the point, is said employee going to feel appreciated if you wait that long to deliver your kudos? An incentive program allows you to recognize employee achievement in a timely fashion, which is more effective at reinforcing that this is a beneficial behavior AND encourages the employee to keep up the good work. 
  • Keeping employees apprised of their performance: As we touched on above, many companies only do an annual review, which means that employees have months to wonder about their performance between meetups. In offering an incentive program, you are outlining or reinforcing the expectations you have for your employees and giving them near real-time feedback on how they are sitting against such benchmarks. If an employee is hitting their goals and receiving regular recognition for their achievements, they can feel confident that their annual review will be favorable, whereas an employee that isn’t gaining the incentives has time to pull their socks up, reevaluate their work, and make changes to improve their likelihood of success ahead of their formal review. 
  • Giving others in the company a chance to recognize their peers: In a traditional review set-up, feedback on job performance typically comes from those that directly supervise the employee. However, you can structure your incentive program as a peer performance metric. In this way, coworkers can recognize their peers for going the extra mile — often in areas where a manager may not be involved — and it can help foster collaboration and teamwork on future projects when the team knows that a reward hangs in the balance. 
  • Keeping existing employees motivated: They say you get more bees with honey, so offering a positive reinforcement tool for good performance is more effective than waiting for employees to fall short and then using scare tactics to bring up the caliber of their work. 
  • Attracting new talent: Offering a structured employee incentive program where employees are recognized for their “above and beyond” contributions can prove helpful in attracting top talent to your company. If you have a praise and recognition program, your prospective employee will likely view your company as a supportive entity where excellence is recognized and rewarded. If you offer token or monetary rewards, meanwhile, it can help bolster a compensation package and perhaps make you seem more competitive from a salary standpoint. 

But these programs, of course, are not without their drawbacks. These include: 

  • It may foster resentment: In most companies, there are those that consistently go above and beyond, that blast through quotas, or are just always willing to go the extra mile to get the job done and then there are the others. If you are truly using your incentive program to reward those who are excelling, chances are you might be rewarding the same folks over and over. If that is the case, you might quickly find that the far from star employees will start resenting those who are consistently receiving the perks and bonuses, resulting in a real divide within your company. 
  • It may not be motivating to all: Unless you have really done your homework and have figured out an incentive that is motivating to all employees in your company. This can be particularly tricky if your employee population skews different age, gender, race and even geographical demographics. You may find that some folks simply are not motivated by the carrot that you are dangling and will not find the employee incentive program at all interesting.
  • You’re already rewarding folks for doing their job: When you hired your employee, you did so with the goal that they would be able to fulfill the duties of their job and in return offered them a salary based on their skills, expertise, and the overall market. If you throw in an incentive program, are you not just overpaying them for work they should be doing anyway?
  • Rewarding the right kind of behaviors: Now, a lot of this will boil down to the structure of your incentive initiative, but you should make sure that when you establish your program, you are rewarding those “above and beyond” type behaviors. Incentivizing work anniversaries, for example, is somewhat redundant because you would have to recognize both those that are superstars and those that are merely keeping a seat warm. 
  • It doesn’t always foster healthy competition: If your reward scheme is tied to group or even company performance, it can foster resentment if a handful of team members – or a whole team – don’t pull their weight and goals are missed. Further, if employees are competing against each other for a finite number of bonuses or rewards, it can cause a cutthroat atmosphere where folks are unwilling to help each other lest they give the other person a leg up in the competition.
  • And the tricky thing about giving monetary incentives: While money is perhaps the one motivator that is universally appealing, it is not without its drawbacks. If the incentives are achieved consistently and then the reward is removed it can be perceived as a slight because over time, they have come to expect (and perhaps rely!) on the money. Further, you must remember that most monetary rewards, and certain other tangible gifts, may also be subject to taxes, which can complicate the tax filing for both you and your employee.

If you need guidance on whether an employee incentive program is right for your business or some helpful parameters to set one up, give us a call here at Abel at 609.860.0400 and we’ll be happy to walk you through the process.  

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