Smart HR | How to incentivise employees the right way

Done right, employee incentives can play a significant role in attracting and retaining talented employees and keeping them focused and engaged.

As well as making employees feel valued, they also serve to promote particular behaviours or levels of performance that are necessary for the organisation’s success.

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However, incentives can also be problematic. Depending on what is incentivised, employers can encourage teamwork and cooperation or unwittingly damage it. It’s also easy to unintentionally emphasise the wrong behaviours. For example, if your aim is to increase productivity, you have to be careful not to unintentionally promote a lesser standard of work. Of course, there are also legal pitfalls to avoid.

There are a number of things to keep in mind to ensure an incentive scheme has the desired effect.

1. Be fair

One sure-fire way to invite problems is to apply incentives unequally. The first question you should always ask yourself is “do the rules of this incentive scheme put a particular group of staff at a disadvantage?”. While you may wish to set certain eligibility requirements to ensure that you reward those who deserve it, it’s important that any conditions placed on entitlement to rewards are not discriminatory.

For example, if you’re incentivising attendance, you must ensure that you don’t discriminate against those who are absent due to pregnancy or genuine health reasons. This will help to avoid claims for possible discrimination at a time when you are trying to incentivise staff and create a positive and motivating working environment.

2. Set clear rules

It’s important that the rules of any incentive scheme are clear, unambiguous and communicated to everybody. This will avoid any suggestion that anyone has been treated differently. You should be clear as to what employees will receive and when in order to avoid issues arising out of miscommunication.

When setting rules, you must ensure that incentive targets are based on objective, measurable criteria as opposed to your own subjective view, as perceived favouritism may result in demoralising other members of staff and therefore have the opposite effect to what you’re trying to achieve.

3. Be realistic

While you may feel obliged to offer lavish rewards, you should be realistic about what is viable for your business. Staff perks don’t have to break the bank; recognition incentives, such as simply thanking employees, sending a personal note of praise or announcing an accomplishment at a team meeting, can go a long way. A new approach that some businesses are embracing is peer-to-peer micro-bonuses, which gives employees the power and a budget to “tip” their co-workers small amounts of money in recognition of good work and may be more viable for some businesses.

If you’re looking to incentivise performance, allowing employees to finish half an hour early if they hit target may be just as effective as compensation initiatives. If you’re looking to promote teamwork, providing lunch for employees is a great way to show your appreciation for hard work and is also an excellent opportunity for bonding. For many employees, this can count for a lot.

4. Avoid creating implied terms

If rewards become the norm, they can become seen as entitlements, and as such, lose their ability to motivate employees. What’s more, allowing incentives to become expected can also mean that these intended perks actually become implied terms.

These are terms that aren’t set out in a written contract but are understood to exist through custom and practice. For example, if you have paid employees a bonus every year for many years, this may, over time, have become contractual term. In practice, this can be difficult to establish and will be up to an Employment Tribunal to decide; however, it’s definitely something to be mindful of and it’s always a good idea to set out in writing that these incentives are discretionary.

If you have paid employees a bonus every year for many years, this may, over time, have become a contractual term

5. Think about the bigger picture

Investing in incentives may only keep employees motivated for so long. If it’s clear that the occasional bonus or treat is the extent of the rewards for their hard work, employees may become disengaged. Beyond these ad-hoc incentives, you should also consider career progression opportunities and be clear about the path to get there. For many employees, this can count for a lot.

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Ask yourself:

  • Have you given employees the tools, resources and opportunities to progress?
  • Do employees understand their career pathways?
  • Are you investing in training and development?

Not only can these measures improve retention but working towards a clear goal can be an effective way of enhancing productivity.

Adele Blinkhorn

HR Consultancy Manager

Advice from the experts

We asked Adele Blinkhorn, HR Consultancy Manager at Ellis Whittam, what advice she would give to employers thinking about introducing a new bonus. Here’s what she told us.

  1. Think about what you’re trying to achieve

Remember – employees are already rewarded for doing their designated jobs by way of a salary payment. So, providing you have salaries set correctly, a fully competent employee should be being paid at a comparable rate for the job they do.

  1. Pinpoint what you’re looking to reward

Bonus schemes should act as an incentive to drive something – and the ‘something’ should be over and above an employee’s day job. With that in mind, consider linking to your organisation’s values and/or behaviours. Consideration should also be given to link bonus to the organisation’s profitability and should therefore only be payable during profitable periods. 

  1. Inclusive, not exclusive!

Schemes should include all employees – not just those in sales and marketing departments. This will ensure everyone is pushing in the same direction at the same time and is therefore more likely to encourage a ‘team’ approach. Be creative and listen to employees’ opinions when creating new schemes. 

  1. Visible and achievable

There is no point in dangling a carrot if the carrot can’t be seen or reached! Bonus schemes should be easy to understand – this will allow employees to calculate what they may be due. Also, linking part of the pot to team or personal objectives will encourage individuals to take responsibility for their actions and encourage growth.

Importantly, you should ensure objectives are achievable, otherwise they will demotivate rather than motivate. Create a mix of short and long-term objectives to keep the individual’s interest and allow them to have some quick wins.

  1. Communicate, communicate, communicate

Communicating with employees should be a continuous process and should start when considering a suitable scheme – so ‘asking’ rather than ‘telling’ employees! Once you have agreed on a scheme, shout about it. Keep everyone informed throughout the bonus period will help keep up the momentum.

  1. Think outside the box

There are other ways to reward employees for a job well done or going the extra mile, so don’t rule out non-monetary awards! Consider cooking breakfast for your team, arranging entertainment such as a comedian or magician, or creating a wall of fame to celebrate high achievers.

Need support?

For advice on setting up a fair and motivating incentive scheme, get in touch on 0345 226 8393.