How Do I...Offer Employee Incentives?

Company incentives can help employee morale and retention, but small businesses on tight budgets must find the most effective and appropriate ways to reward employees.

An incentive is a tangible award that is earned by reaching a predetermined goal -- sales representatives, for example, may receive a prize for reaching a particular sales goal. The most common award types are travel vouchers and merchandise like electronics and gift cards.

Incentives can be used for any type of business or employee. Many firms use them to recognize employees for length of service, birthdays or other contributions. Even in economic downturns, incentives play an important role in maintaining employee morale and shouldn't be abandoned, according to Karen Renk, executive director of the Incentive Marketing Association in Naperville, Ill.

"In good times or bad, organizations are well served by creating a culture of recognition for their employees as well as their customers," she said.

Renk said incentive packages can be designed so that the cost of the award is paid for by the goal achieved. For example, a factory that wants to reduce the number of absentee days could offer incentives to encourage employees to come to work on a daily basis.

"The business can realize savings in terms of reduced absenteeism," Renk said. "The results are ongoing in terms of creating an environment where people are motivated to come to work."

A call center hoping to complete a project on time could offer incentives for employees to handle 10 or more calls an hour and reduce their error rate by 10 percent.

"As long as the employee knows what the desired outcome is, they can work toward that objective and they can be rewarded," said Renk, who stressed the importance of the award the company chooses to offer, saying it must motivate employees.

She offered the story of one company as an example of what not to do. To recognize a long-serving employee, the owner of a five-employee business bought her a fur coat. She didn't seem as thrilled as he had hoped. A few days later he asked her why the sad face.

The employee said: "I've been an employee with you for 25 years and you've never noticed that I'm a vegetarian, and I would never wear a fur coat."

That's a good example of an expensive award that's not motivating. Renk advises that firms ask employees in a survey what kind of incentives they would prefer.

Cash incentives are an option, but Renk said her association's research has shown that cash incentives may not deliver the best results because cash is often viewed as compensation. If an employee has been rewarded with cash in the past but has not met recent sales goals, he may believe that he is getting less compensation for the year.

However, she said cash incentives can help develop "a culture of recognition. Employees like to feel recognized and feeling that their contributions are important to the success of the organization is a strong motivator in employee retention."

In addition to her role as head of the IMA, Renk also owns a 15-employee association management business where she offers incentives. She said it's important for small firms to use an open-ended program, meaning that any number of employees can achieve the award if they've met the goals.

She also recommends that companies not "just pass out $25 gift cards," but that they make sure to tell employees why they're being rewarded and thank them for accomplishing a goal. That way, "an employee understands that even in bad times business owners are making an effort to acknowledge that employee's contribution," Renk said.

This "How Do I" piece will be followed up with a post on what to look for and what to beware of when choosing gift cards for employees.

By Sharon McLoone |  December 4, 2008; 12:38 PM ET How Do I...
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In order to help attract and retain employees, small businesses need to excel in the "culture" department. Employees are beginning to demand more from their work environments, so offering incentives related to work/life balance might help small companies attract and retain great staff. Some cool employee retention ideas can be found at

Posted by: msmiciklas | December 4, 2008 1:03 PM

Especially in rough economic times such as these, sports and other entertainment event tickets can be used to boost company morale as company employee incentives and can thus enhance corporate employee retention strategies dramatically.

It really is win-win for the American employer, who can often retain star players on their staff by simply demonstrating and sharing an appreciation for camaraderie with employees

You can learn more at:

Posted by: myticketin | December 10, 2008 4:09 PM

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