Employee incentives: what they are and how to use them

By Indeed Editorial Team

Updated 3 November 2022

Published 30 November 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

If you're managing a team, it's important to use every tool at your disposal to motivate your coworkers and drive success. Employee incentives are a simple way to increase motivation and productivity among employees and reward those who work hard. Incentives for employees come in many forms, from compensatory incentives to social incentives. In this article, we explore what an employee incentive is and what kinds of incentives you could use to motivate your employees at work.

What are employee incentives?

Programmes for employee incentives give managers the opportunity to reward employees for hard work while simultaneously increasing motivation and productivity in the workplace. Incentives can include an enormous range of rewards or events, including financial compensation, company perks, awards and even trips away. Depending upon the culture of your workplace, you could choose incentives for employees that are specific to your industry.

For example, start-ups hiring young professionals and fresh graduates may find that team-building nights out and paid work dinners are a great way to reward hard work, while employees with young families might prefer financial incentives such as cash bonuses or pay rises. Whatever you choose, it's important to ensure that the incentives you opt for genuinely motivate your team. Listen to your team's preferences and pay attention to which incentives work the best in your office.

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Why do managers use incentives?

There are lots of reasons to offer incentives at work. Some benefits of offering incentives include:

  • Encourage other staff to perform well: Rewarding hard-working staff often encourages other employees to exceed their own performance goals.

  • Increase productivity at work: Incentives can motivate employees to spend their time more productively, in part because they hope to work towards incentives like rewards and bonuses, but also because they might feel gratitude towards a company that compensates them well.

  • Encourage teamwork: Some employee incentives, like those offered to the best teams on a particular project, can encourage productive teamwork amongst your employees and inspire better project management in the future.

  • Boost employee satisfaction: Staff who feel like managers appreciate their efforts are happier and more content at work, which can improve employee retention rates and foster a more positive work culture.

  • Improve talent retention: Offering the right employee incentives, which can include increased salaries and smaller incentives, also helps attract the best candidates for each role and maintain their interest in the position.

Different employee incentives can inspire and encourage employees in different ways. For example, a generous salary can attract talented candidates and ensure that employees work hard for their money, but added rewards, such as sales commission or bonuses based on effort, can encourage employees to push beyond this level of effort and aim for new targets.


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Examples of incentives for employees

Most employee incentive programmes fall into one of four categories. It's important to use incentives from all four categories to provide a broad range of employee incentives that work well for most team members, no matter what they're most motivated by. Here are the four categories:

Compensation incentives

Compensation incentives include incentives based on financial rewards. These are some of the most effective because most employees place a high value on financial compensation. It's important to remember that, although they seem easy to implement, they can also be more expensive, depending on the size of the financial perks you decide to offer. Some of the most common compensation incentives include:

  • Pay rises: Offering a pay rise to employees who have shown consistently high performance is an effective way to reward your employees for their hard work. It also shows the rest of your staff body that your company awards increased pay based on the merit of your work.

  • Bonuses: You can award financial bonuses, such as Christmas bonuses, because of either individual or team performance. Knowing that their bonus depends on overall performance can provide a lot of extra motivation to employees throughout the year.

  • Stock options: By offering your employees the option to take shares in your company, you ensure their investment in the business's future. Working hard to add value to a company also adds value to the shares they hold. This encourages employees to take an active interest in the company outside of their role and has the bonus of maintaining loyalty.

Related: What average annual pay rise can you expect?

Recognition incentives

Recognition incentives are incentives designed primarily to recognise the hard work of employees. These incentives are often small and simple, but when used properly they can promote feelings of respect and trust between staff and employer. This ensures that all staff members feel acknowledged and appreciated based on their individual achievements. Some of the most common kinds of recognition incentives include:

  • Thanking employees: It might sound like a small thing, but taking the time to thank your team for their hard work on a project is an easy way to show your best members of staff that you've noticed how much work they put in.

  • Certificates of achievement: Presenting employees with certificates when they perform especially well reassures them that you've noticed their performance, which can incentivise more hard work in the future.

Recognition incentives work best when combined with other incentives such as compensation. Acknowledgement of an employee's hard work means more if this might indicate that a pay rise could be on the horizon if they continue working at the same standard.

Read more: 14 effective ways to appreciate employees and say thanks

Reward incentives

Reward incentives offer tangible rewards to employees who work hard. They're not related to pay and salary, and you can even tailor the rewards to suit the individual employees. Reward incentives are a relatively cost-effective way to encourage employees to work hard and exceed their targets. Popular reward incentives include:

  • Gifts: Gifts, including chocolates, flowers and drinks, can be a good way to show your appreciation for staff members who have gone above and beyond. You can personalise these gifts and show that you have taken the time to choose something just for them.

  • Gift vouchers: If you work with a large team and you don't know each team member well enough to choose a personal gift, a gift voucher for a popular retailer means your coworker can choose their reward.

  • Paid time off: If your staff has had to work a lot of extra hours during a busy period, you can reward them with extra paid time off. This shows your staff that you acknowledge the extra hours they've put in, which makes them more likely to accept overtime when it's needed in the future.

  • Event tickets: Offering employees event tickets to local events, whether it's a football match, a theatre show or a music concert, is a good way to reward employees while also showing that you want them to enjoy a healthy work-life balance. This is also a great chance to have more personalised gifts, especially for smaller teams where you're able to share individual interests.


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Activity incentives

Activity incentives show your appreciation through the organisation of activities and team celebrations. These incentives don't just reward employees for their hard work, but they also encourage employees to celebrate achievements together, building relationships between coworkers at the same time. Some examples of activity incentives include:

  • Company parties: Whether you choose to hire a formal venue or just order pizza to the office, throwing a party to celebrate the end of a big project is a simple and fun way to ensure your employees feel engaged in the work they do.

  • Paid work lunches: Treating your employees to a paid lunch once a week or once a month is a great opportunity to give back to them while also getting to know one another in a social setting.

  • Birthday celebrations: Fostering a workplace culture that recognises your employees' birthdays with a small party at lunchtime, a cake or even birthday socials is a great way to show your coworkers that you appreciate them and encourage staff to see their colleagues as friends.

  • Bring your pet to work day: Not suitable for all offices, special days such as a bring your pet to work day is one way to show your staff that you go above and beyond to make your office an interesting place to work.

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