Implement staff incentive schemes

Staff incentive schemes: the options

Guide

There are a wide range of staff incentive schemes, each with different costs and appeal. They include financial and non-financial schemes, individual and group benefits, and short-term and long-term schemes.

Options for staff incentive schemes

Financial incentives in the workplace can help your business meet targets, motivate staff and improve performance and productivity.

Examples of financial incentives include:

  • bonuses
  • commission
  • employee stock options
  • paid time off

Non-financial and non-pay incentives reward staff performance through perks and opportunities. Non-financial incentives include:

  • flexible working hours
  • formal recognition/awards
  • vouchers
  • extra unpaid leave
  • gifts
  • company cars
  • training opportunities
  • further education opportunities

An incentive scheme can offer employees extra pay as long as they reach individual or group performance targets. See performance-related pay.

Advantages and disadvantages of incentive schemes

Type Advantages Disadvantages
Financial incentive Can focus employees on hitting a target

Places a value on achievement

Rewards are sometimes small

Can demoralise if not earned

Non-financial incentive Can recognise employee priorities and lifestyles

Can encourage attachment to business

Can be taken for granted

May be inappropriate

Individual incentive Can focus the individual on achievement

Links extra pay with extra output

Can be divisive

Individual earnings can fluctuate

Group incentive Can encourage team working

Can correct individual under-performance

Can undervalue individual skills

May encourage bullying of under-performers


Some businesses allow staff to select their own benefits from a pre-defined list, eg staff might be able to choose between health insurance and a gym membership.

Promotion and training opportunities are not strictly incentives as they are ways of fulfilling business needs. However offering employees the opportunity to access training or further education courses that aren't directly related to the person's job role with some or all of the costs met by the organisation can work as a staff incentive.

Ensure your business avoids using negative incentives, eg threat of dismissal. These may may work in the short term but may create a toxic workplace culture and can decrease morale and loyalty.

Tax considerations for staff incentives

There are tax and National Insurance implications for most financial incentives and for non-financial benefits with an equivalent cash value - see employee incentive awards.

Other considerations

When offering any incentives in your workplace ensure equality and avoid discrimination by enabling all staff the opportunity to access all available incentive schemes.

In addition, you are required to treat married employees and those in civil partnerships in the same way. For example, if you have a benefits package that is available to an employee's spouse, it should also be available to an employee's civil partner.

See marriage and civil partnership discrimination.