Employee incentives: The gift that's better than a bonus

By Kate Monica|6 min read|Updated Sep 11, 2023

Divvy up that big end-of-year bonus into a series of smaller employee incentives. Send them out quarterly.

According to an extensive longitudinal study conducted over 2 years in Norway, spreading out the bonus is more effective at boosting employee motivation and effort than a large sum of cash delivered annually.

Employee incentives also reduce turnover. And you don’t have to send much. Sending employees between $50-$200 as part of an employee rewards and recognition program reduces the chances they’ll quit.

By about 43%, according to one 2020 study.

And encouraging existing employees to stick around saves you a lot of money year-over-year. Companies pay between 90%-200% of the original employee’s salary in losses every time they have to replace a worker.

Text reads: "Employee incentives reduce turnover". A small stack of coins represents the cost of incentives, while a large stack of coins represents the cost of replacing employees that leave.

Employee rewards and recognition programs provide different incentives for various performance milestones and life events, including birthdays, holidays, work anniversaries, wedding anniversaries, or success according to various performance metrics.

We’ll tell you how to build an effective and cost-efficient program for rewarding performance and recognizing milestones.

Team-based financial incentives have a significantly higher impact on employee performance when they’re distributed equitably rather than equally, according to a meta-analysis of 146 studies .

Equitably distributed incentives are given to specific individuals or teams based on achievement and performance.

Everyone doesn’t get the same reward – rather, individuals receive different rewards based on their varying levels of performance.

People or teams who perform better get a higher incentive. It’s not equal, but it’s fair.

In the case of equally distributed incentives, everybody gets the same amount at the same frequency regardless of achievement. It’s equal, but it’s not necessarily fair.

In addition to increasing employee performance, equitably distributed incentives also increase employee engagement.

Here’s how to build an equitable employee reward & recognition program and boost employee engagement and performance:

Set clear objectives: Is your program going to reward individual performance, or team-based performance? What metrics will you use to gauge success? Identify how success will be measured and who is eligible for a reward.
Allocate budget: Our internal research shows a reward between $50-$200 will satisfy almost all employees.
If you’re rewarding individual performance, introduce a tiered system in which employees who exceed a certain threshold receive, say, a $50 reward, but the individual who performs best receives a $200 reward.
Alternatively, if you’re rewarding team-based performance, give each individual on the highest-performing team a $50 or $100 reward.
Regardless of the system you implement, a little goes a long way.
Clearly communicate criteria: Develop clear internal communications collateral describing how success will be measured, why eligible employees will be rewarded, and what employees are expected to do. Ensuring everyone understands the rubric goes a long way towards establishing fairness and equity.

A graphic displaying 3 steps for building an equitable employee reward and recognition program. These steps include: setting clear objectives, allocating budget, and communicating criteria.

Both non-monetary and monetary incentives are suitable ways to reward and recognize employees for their hard work.

Monetary rewards are pretty straightforward – they include raises, bonuses, equity, and other kinds of financial incentives. And we’ve already told you how much to give – anywhere between $50-$200 will be met with a warm reception.

Non-monetary rewards are a little more nebulous, but still gratifying: praise, greater levels of autonomy or flexibility at work, an increase in responsibility that represents a higher degree of trust, etc.

But which type of incentive do employees prefer?

According to one comprehensive analysis of 7 years of data (Curran & Walsworth 2014), non-monetary and monetary rewards are equally important.

Researchers found using both financial and non-financial rewards in conjunction improves employee engagement and retention.

Text reads: "Non-monetary and monetary rewards are equally important." A stack of cash and a trophy are weighed equally on a scale.

Combining both types of incentive also had a positive effect on innovation.

Notably, fixed pay (like salary) and individual performance pay (like commissions) have no effect on innovation.

However, variable group pay (or, performance-based monetary rewards) combined with non-monetary rewards did have a marked effect on innovation.

To keep employees motivated and engaged, send a $50-$200 monetary reward, delivered over email, with a kind custom message.

And err on the side of sending smaller gifts more frequently, rather than large, annual gifts. Small, frequent gifts have a more significant positive impact on employee performance.

Sending a token of appreciation quarterly – maybe one for high performers, one for the holidays, one for work anniversaries, one for team-based performance, whatever arrangement works for you – will help to increase employee retention and may even contribute to greater levels of innovation across your org.