Monetary incentives and rewards are a great way to improve employee morale, increase productivity, and decrease turnover. Here are 10 ways you can use them to motivate and recognize your employees.
Table of contents
- What Is a Monetary Incentive or Reward?
- The Benefits of Monetary Incentives & Rewards
- The Challenges of Monetary Incentives and Rewards
- Tips for Implementing Monetary Incentives and Rewards
- 10 Monetary Incentives and Rewards for Your Employees
- Motivate Your Employees with Monetary Incentives and Rewards
Unmotivated employees can cost your business big time. Low employee morale affects engagement, productivity, and innovation. It can lead to poor customer service, which can damage your reputation and lose you business. Disengaged workers are also more likely to leave an organization, resulting in higher HR costs.
A powerful way to motivate employees is by offering monetary incentives and rewards. They foster a company culture that makes employees feel valued and appreciated. This more positive working environment not only boosts employee morale. It also increases employee engagement, productivity, and loyalty.
In this article, we explore 10 incentives and rewards you can use to motivate and recognize your employees. If you’re wondering what is a monetary incentive or how best to recognize and reward your employees, we answer all of your questions and more!
What Is a Monetary Incentive or Reward?
Monetary incentives or rewards are cash or gifts with a monetary value. Employers give them to employees to recognize and encourage good work. They can recognize and reward individual employees, teams, or the whole organization.
Bonuses, profit sharing, and gift cards are common examples of monetary incentives and rewards. They are a proven way to motivate employees and boost employee performance. Many companies offer them to increase employee productivity, engagement, and morale.
Monetary incentives and rewards are usually offered in addition to an employee’s base pay. They are also separate from employee benefits. Benefits are set out in an employee’s contract. Employees are entitled to them as soon as they start working for a company.
In comparison, incentives and rewards are not guaranteed. Instead, they are typically tied to specific performance targets.
Employee incentives and rewards can be monetary or non-monetary, such as flexible working arrangements or a thank you card. But both monetary and non-monetary incentives and rewards can be powerful motivators. For this reason, employers often use a combination of the two in their employee recognition and incentive programs.
The Benefits of Monetary Incentives & Rewards
Improved employee morale
Monetary rewards for employees are crucial to boosting employee morale and motivation. When you reward employees, they feel valued. It tells them that you notice and appreciate their hard work and contributions.
This is a strong motivator for employers. Rewards link an employee’s action with the achievement of a goal. They foster a positive association between the two. This encourages your employees to continue delivering good quality work.
Acknowledging your employee’s efforts also increases job satisfaction by giving them a sense of pride in their work. They feel fulfilled and happy in their role. As a result, they are more likely to stay with your organization long-term.
Increased engagement and productivity
Monetary rewards for employees are directly linked to better employee engagement. In a recent study by Harvard Business Review, employees who felt their managers were skilled at acknowledging their efforts showed over 40% higher engagement compared to those who didn’t.
Incentives and rewards positively reinforce behavior. By linking them to specific milestones, employees understand what they need to do to perform well in their job.
So an incentive and reward plan helps employees set goals that align with organizational objectives. This translates into increased productivity. 93% of employees who feel valued by their employer say they are motivated to do their best work.
Reinforces your company culture
Developing an incentive plan or rewards program is an opportunity to reinforce your company culture. It’s important to make sure your proposed incentive and rewards complement your company culture to achieve this.
For example, if you prioritize employee well-being, you could offer employees a gym membership discount or stipend. If you focus on sustainability, you could gift your employees reusable coffee cups or drink bottles.
An incentive and rewards plan itself also builds employee appreciation in your culture. This helps reinforce shared values and encourages a sense of community within your workforce.
Attracts and retains top talent
Employee incentives and recognition programs can be powerful employee retention tools. When your employees are motivated, engaged, and satisfied at work, they are likely to stay longer with your organization. According to McKinsey, “compensation is a key reason why people switch jobs and providing financial incentives can help organizations retain their top employees.”
You can also use your incentive and reward program to help you stand out from other employers. Offering unique incentives can help you attract top talent when recruiting for a role.
The Challenges of Monetary Incentives and Rewards
Monetary incentives and rewards offer many benefits. But you can also face challenges when implementing monetary rewards and incentive plans. For example:
- An overemphasis on financial incentives or rewards can lead to employee burnout. Employees may feel the need to overwork themselves to receive the reward.
- Monetary incentives and rewards can be demoralizing in certain situations. For example, receiving a small annual bonus when employees expected a larger one could negatively impact their morale.
- If employees feel that an incentives and rewards program is unfair, it can create resentment among them.
- Monetary incentives may encourage unethical employee behavior. An extreme example of this is Wells Fargo. The bank introduced an incentive scheme to reward employees for opening new accounts.
This led to thousands of employees opening up accounts in customers’ names without their knowledge or permission. The bank was later fined $185 million by regulators for this conduct.
The takeaway? You need to carefully assess whether monetary incentives and rewards are the right tools to motivate your workforce. If they are, you must design your incentives and rewards program strategically. This includes using a combination of financial and non-financial incentives and rewards.
Tips for Implementing Monetary Incentives and Rewards
Align incentives and rewards with company goals
Incentive and rewards programs should be unique to the needs of your employees and organization.
When designing an incentives and rewards program, ensure it supports your company’s short and long-term goals. For example, if your company is in a growth phase, you could introduce a recruitment referral bonus. This motivates employees while assisting you in finding top talent.
By doing this, you’re more likely to see tangible results. This approach makes it easier to measure the impact of your incentives and rewards program. It also helps you structure your program to accommodate your budget.
Consider your budget
By definition, there is a cost involved in monetary incentives and rewards. So it’s important to know your budget when designing an incentive and rewards program.
Keep in mind that monetary incentives and rewards don’t need to be extravagant to be effective. Thoughtful incentives and rewards are just as powerful motivators. So put the time into developing a program to suit both your employees and your budget.
Ensure fairness and equity among employees
Your incentives and rewards program must be fair otherwise, it can have the opposite effect.
This doesn’t mean every employee has to receive the same thing. Incentives and rewards are not a one-size-fits-all solution. What motivates one employee won’t have the same effect on another.
You can and should tailor monetary incentives and rewards to an individual or team. But you also need to apply your program equally.
One way to do this is by offering your employees gift cards from different businesses. While everyone receives something of the same value, it is uniquely tailored to their interests.
It’s also essential to consider any DEI issues. Make sure your incentive and rewards program isn’t unintentionally biased. For example, annual bonuses based on overtime could discriminate against employees with carer responsibilities.
Check your legal and tax obligations
Monetary incentives and rewards are often taxed differently from wages.
At the federal level in the US, the IRS treats monetary incentives and rewards as supplemental wages. This means they are taxed, and, as an employer, you need to withhold the necessary amounts.
If you pay employees monetary incentives or rewards separately from their wages, you generally need to withhold 22%. This applies to amounts under $1 million. For amounts over $1 million, the withholding rate increases to 37%. Employer payroll taxes—such as Social Security and Medicare—must also be withheld in addition to this.
If you pay monetary incentives or rewards combined with the employee’s wages, then the employee’s regular income tax rate usually applies.
As an employer, it’s important to understand the tax implications of monetary incentives and rewards. Check your relevant federal, state, and local laws to ensure that you’re complying with your obligations.
Use a recognition and rewards management app
An app is a great way to digitally manage your incentive and rewards program. It can help you track and celebrate employee achievements and milestones. It also gives you a central, consistent way to roll out your incentive and rewards plan.
Connecteam’s Rewards & Recognition software is ideal for this. It lets you show your employees appreciation in a range of ways—including by using points-based recognition programs.
10 Monetary Incentives and Rewards for Your Employees
- Gift cards are a great employee incentive to suit any budget. They let the employee decide how to spend their reward. Choose a gift card based on an employee’s specific interests. For example, if someone is an avid reader, buy them a voucher for a local bookshop.
- Gifts are another great way to thank your employees. Indoor plants, coffee mugs, and candles are some suggestions. Unlike cash rewards, gifts are lasting, tangible reminders of an employee’s work and the recognition they received for it.
- Tickets to an event or experience. You can also offer your employees a voucher for a spa or tickets to a local sports match, concert, or movie. They can enjoy these experiences with work colleagues, family, or friends and build their connections.
- Pay raises. Increasing an employee’s salary or hourly rate recognizes their performance and loyalty to an organization. Keep in mind that—unlike one-off bonuses—pay raises are permanent. Make sure you have the budget for them.
- Employee stock ownership programs (ESOP). ESOPs allow employees to own stock in the company they work for. Employees receive the value of their stock when they leave the organization or retire. ESOPs can also offer tax advantages for both employers and employees—depending on the circumstances.
- Profit sharing. Under a profit-sharing model, employees receive a percentage of the company’s profits. The more profits the company makes, the more employees will receive. This gives employees a sense of ownership in the company’s success, which is a strong motivator for productivity.
- Bonuses are a one-time monetary reward, which is often tied to a specific performance target like the end of a project. You can also schedule bonuses—for example—at the end of the financial year or for a work anniversary. They can also be used to incentivize other behaviors. For instance, you could offer a referral bonus to employees who help recruit a successful candidate to the organization.
- Commissions. Often used in the sales industry, this approach pays employees a percentage of the profits of each item they sell. This incentivizes them to achieve certain sales targets.
- Stipends are small sums of money that employees can use for a specific purpose like gym memberships or work-related training. Stipends like these improve your employees’ experience and boost their morale.
- Gain-sharing plans. Under a gain-sharing plan, employees receive payment for increased productivity in a certain area of a business. The associated cost savings or increased profits are shared between employees. This incentivizes employees to identify ways to improve the business’ performance.
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Motivate Your Employees with Monetary Incentives and Rewards
Monetary incentives and rewards are a great way to motivate and recognize your employees. One-time monetary rewards such as bonuses can improve employee morale and engagement. In turn, this increases productivity and reduces staff turnover.
But you need to use monetary incentives and rewards carefully. Their overuse can lead to employee burnout or even encourage unethical behavior.
Consider whether they are sustainable for your business and your employees. It’s also important to use them along with other motivational strategies, such as non-monetary rewards. When used like this, monetary incentives and rewards can be powerful tools for motivating your employees.
*This article is for informational purposes and is not intended to provide tax or legal advice. You should consult a professional about your tax obligations concerning monetary incentives and rewards.