Boosting Performance Through Rewards and Incentives

A work environment is a place where one can enhance talents, develop new skills, form relationships, accomplish goals, and so on. In short, it is and should be a place for growth, not only for the company itself but for its employees.

As Vaughn Aust puts it, "Happy employees lead to happy customers, which leads to more profits." It is a mutual, healthy, give-and-take relationship to work things out together in a company; sometimes, incentives are needed to maintain that.

Benefits of Rewarding Employees for Company Performance

One of the essential things that can drive employees to perform well or even better is rewards. Rewarding employees for company performance is a significant factor in maintaining motivation, productivity, and loyalty. This is being practiced by many companies worldwide to preserve and uphold their people.

Employers give incentives to their employees' actions, which produces a domino effect. The workers carry out their tasks more effectively and efficiently, make better output, and satisfy more customers. It keeps everyone happy while building up the business.

Compensating good performance also has other benefits along with those mentioned above. It can encourage friendly employee competition, driving up sales and production. Practicing this creates a positive and encouraging workplace, as well.

The act of rewarding likewise will make employees feel that their efforts are recognized and appreciated. Consequently, this can reduce stress and absenteeism, increasing office satisfaction and enhancing employees' well-being. All things considered, it is crucial to reward performance in the workplace.

Evaluating Employee Performance

A system for measuring and evaluating employee performance is the first key to applying this reward system. There is no one-size-fits-all for it because every employee is different. But there is a common ground in carrying out a reward system: celebrating achievements.

Employees who have helped the company in its growth and expansion are the ones deserving of receiving recognition and incentives. Besides tangible accomplishments, there are several other factors to consider in creating the company's reward system.

Making a Reward System

Here's what employers should do to create an effective employee reward system.

·    Engage with the employees

People have their own specific motivators. It is important to look into the employees' demographics because this plays a significant role in their whys of life.

For instance, millennials would appreciate rewards such as public recognition, flexible hours, and progress feedback. On the other hand, older employees would value rewards like a free dinner, spa retreats, and a day off. An effective reward system is customized to the employees' preferences.

·    Be goal-oriented

Incentives based on a goal and criteria make it possible for every member to earn a reward for themselves. Employees are at their respective levels and have their own goals. It is important to respect their pace but, at the same time, recognize personal milestones that they reach.

By doing this, instead of having just one or a few "winners" receiving a reward, all employees feel they have a fair chance of getting an incentive.

·    Reward teams

Teamwork is needed in some cases or projects. Just as solo performances should be rewarded, so should team accomplishments. Practicing this would help encourage employees to be more cooperative and engaged during team activities. Consider a tiered team or individual reward system to recognize higher achieving team members.

Best Practices for Employee Incentive Programs

As mentioned, employees have varying preferences when it comes to rewards, and this is mainly because of differing demographics. Incentives can be broken down into the following categories: compensation, benefits and perks, recognition, and appreciation. From these, it is a matter of customizing it.

An employer may use one or more. A successful reward system is well suited or tailored to the employees' needs.

·    Inform employees how they can earn rewards

it is not enough to set an explicit criterion for employees to receive an incentive. It is also important to inform everyone about it to avoid situations where an employee may feel left out. In instances where there are company programs or events, having a clear understanding of the mechanics can help push members to participate and go for the gold.

·    Make rewards exciting and enjoyable

Some companies stick to the status quo by simply handing out extra cash. But to further motivate and inspire employees, employers should find ways to offer unique rewards. An example of this can be supporting an organization or charity an employee is a part of. Employees would surely appreciate a personalized touch like that.

·    Gamify rewards

Although teamwork and collaboration are encouraged in the workplace, a little friendly competition won't hurt. Once in a while, having contests that can win them over items such as gift cards and prizes can boost employees' productivity. It is important, however, to not gamify recognition as this will only lead to giving out insincere appreciation.

·    Boost personal development

This may not excite every employee, but it pays to invest in personal development. Offering free courses and certifications can increase or enhance the employees' skill set and add value to them.

·    Acknowledge big and small achievements

When thinking of rewards, employers sometimes only associate this with the major wins of the company. However, there are also small victories worth celebrating. Little wins ultimately lead to significant accomplishments, so they are just as important and deserve recognition.

Profit-Sharing

Another reward system that employers can look into is profit-sharing. Profit sharing is one of the reward systems some companies use, but this is only applicable when profit is made within a specific timeframe.

Unlike bonuses, this is an incentivized compensation plan consisting of only a percentage of the company's profits to eligible employees. It is usually based on a company's annual profit, and its distribution depends on the employees' salaries. There are different ways profit sharing can go about, and they are categorized into three: cash, deferred, and combination.

·    Cash profit sharing plan

From the name itself, cash is directly given to the employees. It can also come in checks or as stock. The amount received by employees is then taxed as their regular income for that year. In a way, this type of profit-sharing functions similarly to a bonus.

·    Deferred profit-sharing plan

This is a means to give financial assistance to employees getting into retirement. Contributions are placed into a trust fund, where money can grow faster. It then only becomes taxable upon withdrawal.

·    Combination plan

Under this method, employers give back to their employees by distributing part of their profits put into a trust fund. This may also foster other benefit plans.

To better grasp the concept of profit sharing, here is a breakdown of the necessary steps to set up a profit-sharing plan:

§ Create a pool

§ Company leadership or human resources team should formulate a distribution

§ Adopt a written plan document

§ Arrange a trust for the plan's assets

§ Develop a record-keeping system

§ Provide plan information to employees eligible to participate

Just like any other business plan, all transactions must be accounted for. Set up this program by working with a professional such as an investment advisor. This can ensure the plan is successful, following compliances and maximizing benefits.

When changes in the profit-sharing plan are made, stakeholders get involved in handling documents, and employees are informed of any updates. Once the profits are ready for distribution, it is given through cash or in stocks and bonds.

Advantages of Profit-Sharing Plans

There are many benefits of profit-sharing plans to both employers and employees. It is less risky than bonuses because its expense is based on profit or revenue. Employers worry less about paying employees since there are no fixed costs or a minimum amount required.

In the same way, this prevents companies from developing a bonus program which can sometimes be too costly.

Profit-sharing plans also have their fair share of tax benefits. When a certain amount of contribution is attained, it becomes tax deductible. With deferred profit-sharing plans, the tax liability is minimized because contributions are only taxed once they are issued at retirement. This allows employees to maximize their savings.

Another advantage of profit sharing is for the employees. Besides getting incentives to motivate them to work harder, profit sharing also offers an extra boost. This reward system makes them feel valued and gives them a sense of belonging because their employers share their earnings. This, in turn, can increase productivity, loyalty, and satisfaction.

Effective Rewarding in the Workplace

The concept of rewards in exchange for doing something good has been around for so long. Giving out incentives to employees for their performance is just the same. For the work environment to constantly flourish, it needs sowing, watering, and caring.

There are many ways employers can practice this, as discussed in this article. From small gestures of appreciation to bigger rewards such as profit-sharing plans, all of these go hand in hand with giving back to the people who are keeping the company going.

Employers can expect excellence more often as they continue to reward employees' good behavior and superb performance.

Author Bio:

James Peters is a dynamic leader in the world of HR and Global Mobility. After a long career in helping businesses develop global programs and corporate expansion plans, he is now the president of Global Expansion — a company helping startups and Fortune 500 companies in need of complete and streamlined Employer of Record (EoR) solutions. In addition, James shares his expertise through business mentorship and writing.