What are the Different Types of Employee Incentive Plans?

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  • Last Modified Date: 27 March 2020
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Employee incentive plans can be classified in numerous ways. They may be specific incentives offered to all employees upon hire, like health insurance benefits, flexible scheduling, health savings plans, access to cafeterias or membership in gyms. Alternately, an incentive may be offered to reward employees for certain types of behavior like maintaining a safe work environment, working for a specific time for a company, or increasing sales. These plans could include things like cash bonuses, gift certificates, travel plans or gifts of company branded or non-branded items. Theoretically, salary, especially one that includes a commission payment, is also an incentive to remain at work and remain productive.

There is some argument about whether employee incentive plans should include the non-cash benefits that all workers might get, like health insurance. Such benefits may or may not prove to be an incentive. When they are superlative and unlikely to be found in other companies, employees may view them as a special privilege of their current work environment and be more loyal and productive. For example, Google® employees at the main company site have access to a gym and a cafeteria, and this is not that common in the workplace. It can inspire loyalty to the company and a sense of happiness about working for a company that appears to care about employee needs.


Many companies don’t stretch that far, but they still use a number of employee incentive plans to encourage workers. One method of incentivizing work is to offer cash bonuses when employees have been particularly productive or at the end of the year based on affordability and company profit. There are some critics of this system because cash has no “staying power” and is likely to be spent and forgotten. Similarly, many gift certificates may not remind the employee in the future that they were incentives because they can be quickly converted into service or merchandise. Still, gift certificates or points that allow people to choose an item from a catalog of merchandise are some of the most popular employee incentive plans.

The things that are likely to better remind the employee of the fact he or she received an incentive include things like travel employee incentive plans, where a person will get to take a memorable trip. Travel incentives are common in sales industries. Less expensive is any form of merchandise branded with the company’s logo, such as t-shirts, keychains, and plaques awarding the employee for some level of service.

When companies are developing employee incentive plans, they need to consider how well these plans will be received and should track how well, over time, the plans work to accomplish employer goals. For example, if a car sales company has salespeople that scarcely ever earn incentives, the company should determine if the incentives are not worth reaching, or if the goal to reach them is too high. Companies should be willing to adjust employee incentive plans over time as they gather information about how well they’re working.


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