Types of incentives to consider adding to your incentive programs

The main types of incentives that can be used to drive the performance and engagement of your people are:

1. Monetary incentives: These are direct financial rewards such as monetary bonuses, commissions, equity, or spot rewards, often tied to measurable outcomes like individual performance, sales goals, or company-wide results.
2. Non-monetary incentives: These rewards don’t involve money. Instead they can be public recognition, professional development opportunities, or extra time off to boost work-life balance and serve as powerful drivers of motivation and loyalty.
3. Team-based vs. individual incentives: These are rewards that differ by structure and distribution, with individual incentives focusing on personal achievements and team-based incentives encouraging collaboration and shared success among team members.

Company referrals are also considered a type of incentive. Many organizations run referral programs that reward employees for successfully referring hired candidates, using cash rewards, bonuses, or other benefits. These programs effectively encourage employees to support recruitment efforts while reinforcing a culture where employees feel trusted and valued.

Incentives differ from compensation but should be thoughtfully integrated into your overall compensation policy. When aligned with variable compensation, indirect compensation, and performance-based merit cycles, incentive programs can strengthen your total compensation plan and contribute to a more motivated, high-performing workforce.

Your incentive program should also consider timeframes. Short-term incentives, like spot bonuses or project-based awards, recognize immediate impact, while long-term incentives, such as equity grants or career development pathways, promote sustained engagement and retention.

In addition to tangible rewards, intrinsic incentives like meaningful work, autonomy, morale, and purposefulness can be essential in how your people feel about their contributions and your organization.

Step-by-step: How to create an employee incentive program

To create an effective employee incentive program, follow a structured approach that ties rewards to outcomes, scales across teams, and aligns with your organization’s goals.

Here’s how:

1. Clarify your goals

Start by asking: Why are we implementing this program?

If your focus is retaining high performers, increasing employee engagement, improving sales performance, or reinforcing company values, your incentive program must be tied to specific objectives.

If your organization is a tech company facing a high turnover, emphasize retention by including long-term rewards such as stock options, professional development stipends, or recognition of project milestones.

Alternatively, if your organization is in the retail sector with high seasonal demand and a large frontline workforce, your incentive plan should feature short-term cash bonuses, flexible shift options, and public recognition. These will help drive immediate performance and support your operational goals during peak periods.

2. Identify what behaviors or outcomes to reward

Once you’ve clarified your goals, identify what specific behaviors, milestones, or results you wish to reward. This step helps ensure alignment between the incentives your program will offer and the performance outcomes you wish to promote.

Here are some examples of behaviors and outcomes to reward based on different objectives:

• Closing deals, if your organization’s goals are to drive revenue growth and meet ambitious sales targets
• Improving customer satisfaction scores to support goals around client retention, brand reputation, and service excellence
• Meeting deadlines on key projects to ensure timely delivery and cross-functional alignment
• Mentoring junior workers to foster a culture of knowledge-sharing, leadership development, and team resilience

Focus on measurable, observable behaviors that are within your people’s control and that support your organization’s overall strategy.

3. Segment by role, level, and location

Tailor your program by job role, seniority, department, and geography to make your rewards more relevant and equitable. Avoid a one-size-fits-all approach that risks creating disengagement, especially if your workforce is global or hybrid in nature.

Your sales team may thrive on commissions and bonuses tied to quotas, but your technical team may prefer flexible working hours and access to career development opportunities.

Similarly, your locally based workers may prefer in-person recognition or team events, while your global workforce may value digital rewards, additional leave, or asynchronous recognition delivered through internal platforms.

4. Choose your incentive types

Choose the incentive mix that best fits with the goals, outcomes, and segments you’ve identified. Combine monetary, non-monetary, and team vs. individual rewards to create a well-rounded program that appeals to different motivations and work contexts.

Consider the following combinations of rewards that align with specific objectives:

• Individual cash bonuses combined with team-based profit sharing, to reward short-term sales performance
• Peer-recognition programs combined with flexible working options and professional growth opportunities, to improve worker engagement across departments
• Equity schemes or retention bonuses, to boost loyalty and workforce stability in key roles

5. Define eligibility and frequency

Make it clear who is eligible to receive incentives, how often rewards are given, and what the qualifying criteria are. This will avoid confusion and help build trust in your program’s fairness.

Set parameters like minimum tenure, role eligibility, or performance thresholds. Decide how often incentives are evaluated, e.g., monthly, quarterly, or annually.

While a startup might award quarterly spot bonuses for going above and beyond, an established organization may tie annual performance bonuses to formal review cycles based on manager ratings, KPI achievements, and company-wide financial results.

Define the rules that apply to your organization, communicate them clearly, and ensure they’re applied consistently to maintain transparency and equity across your teams.

6. Create a budget and get buy-in

Estimate the total cost of your program, including the proposed monetary rewards, software tools, and time to manage it. Present this in terms of ROI, emphasizing how it will reduce turnover, improve productivity, or align with revenue growth for your organization.

Highlight how your program will support your organization’s strategic goals. Your leadership will likely want to focus on this key area.

Consider the example of a 200-person company proposing to allocate 1.5% of its payroll to fund a tiered bonus program. How could you position this in terms of cost savings or performance gains to justify the expected costs of the program?

Position the program for measurable business outcomes to make the case more compelling and beneficial. If the company has a high annual turnover rate, for instance, creating a large cost impact, then show how the incentive program could improve retention. Even a small improvement may be enough to secure approval.

7. Train managers

Train your managers to apply your program consistently, equitably, and with strong communication skills. They should know how to explain your program’s key components, such as eligibility criteria, reward structure, and performance expectations.

Your managers should also convey your program’s intent and value in a manner that avoids bias, promotes inclusion, and reinforces trust. You’ll need to support them with clear guidance on how to recognize contributions fairly and handle your people’s questions with confidence.

8. Pilot and gather feedback

Before a full rollout, run a pilot program with a specific team or department. This lets you test whether the rewards are truly motivating, if the rules are clear, and how the program fits into real workflows.

Gather quantitative and qualitative feedback from participants and managers. Ask what worked, what felt confusing, and whether workers felt recognized and motivated by the structure and delivery of the incentives.

Consider this example: A company plans a peer-recognition program and runs a pilot with the marketing and operations team. Let’s say the marketers loved the public praise element, but the ops staff preferred a quieter Slack shoutout and a lunch voucher.

This example illustrates how team-specific insights help shape a program that resonates across different work styles and preferences. A more inclusive, company-wide version of the program could allow workers to choose between public recognition and private acknowledgement, ensuring the rewards feel meaningful to the individual.

9. Measure and refine

Define success metrics and regularly evaluate whether your incentive program meets its original goals. Use a combination of data and anecdotal observations to identify gaps.

Uncover blind spots and improvement opportunities by asking yourself:

• Are some teams under-rewarded?
• Are incentives still aligned with shifting priorities?
• Are certain types of rewards consistently underutilized?
• Do your people feel the program is fair and motivating?
• Are managers applying the program consistently across departments?

Examples of metrics for tracking the impact of an incentive program

Use these metrics to help elicit outcome-driven and engagement-focused insights:

• Retention rates: Monitor your staff turnover, especially among top performers. A fall in voluntary exits may signal that your program is boosting loyalty.
• Engagement scores: Use survey feedback to assess how valued, motivated, and fairly rewarded your people feel over time.
• Incentive participation rates: Track the number of eligible workers participating in the program. Low participation rates may suggest unclear rewards or a lack of relevance.
• Performance vs. incentive correlation: Compare incentive recipients with performance data to see if rewards are going to the right contributors and driving results as intended.
• Manager utilization rates: Measure how often your managers apply the program. Inconsistent use may require better training or clearer guidance.
• Cost per rewarded outcome: To understand the program’s ROI, evaluate how much you’re spending per key result, such as a retained worker or increased productivity.

Examples of effective incentive programs

Here are some real-life examples of effective incentive programs adopted by companies across different industries and team structures:

1. Sales teams: Sales performance incentive funds (SPIFFs)

Sales performance incentive funds (SPIFFs) are short-term, targeted incentives designed to motivate sales teams to achieve specific objectives. Here are two examples of how SPIFFs are used:

• Hometap Equity Partners integrates SPIFFs into an incentive strategy emphasizing career development and recognition. Non-monetary rewards such as career pathing opportunities, Toastmasters competitions, and mock call practices recognize individual achievements and provide avenues for professional growth.
• Lusha includes incentives such as bonus days off, gamified competitions, and celebratory rituals upon closing deals, combined with prizes like electric scooters and Dyson hair dryers. These help foster a positive and engaging sales environment and promote healthy competition and team cohesion.

2. Engineering and innovation: Hackathons and “20 percent time”

Google uses hackathons and 20 percent time projects to boost innovation and incentivize its engineers to pursue passion-driven ideas. Winning a hackathon provides greater visibility within the company and can lead to career development opportunities, leadership roles, and funding for ground-breaking projects born out of the hackathon.

3. Immediate recognition: Spot bonuses using pre-paid cards

Many companies offer immediate gifts for top-performing individuals through spot bonuses or awards. To facilitate this, Visa has developed a pre-paid card that companies can use to distribute incentives to their people in a way that’s fast, convenient, flexible, and redeemable anywhere Visa cards are accepted.

Common mistakes to avoid when creating your incentive program

Avoid the following common mistakes to ensure your incentive program is effective, fair, and scalable:

• Using a one-size-fits-all design: Applying the same incentive model to every role overlooks how value is created across teams, e.g., revenue generation vs. operational efficiency, and may alienate workers whose contributions aren’t directly tied to measurable outputs like sales.
• Lacking transparency: If your people don’t understand how rewards are earned or if they perceive favoritism, they’re less likely to engage with the program or trust its fairness
• Ignoring local context: Failing to tailor rewards for different regions, time zones, or cultures can lead to disengagement, especially in global or remote teams.
• Infrequent or inconsistent rewards: Sporadic recognition undermines the purpose of incentives. Your people should feel that strong performance is consistently acknowledged and encouraged.
• Allowing unchecked manager discretion: If your managers have too much latitude without a clear framework, this can lead to inconsistent application, mixed messaging, and a perception of bias, detracting from trust in the program.
• Overcomplicating the program: If your program has too many rules, categories, or unclear criteria, it can be hard to follow, discouraging participation.
• Neglecting feedback and iteration: Treating your program as “set and forget” rather than monitoring performance, gathering input, and refining over time can limit its long-term relevance and impact.

Implement compliant, impactful global incentive programs with Deel

Deel helps you build and manage scalable, fair, and compliant global incentive programs with confidence:

• Define clear career levels and incentive eligibility using the Deel Engage career module
• Link performance to compensation, define salary bands, and run structured pay reviews with Deel Compensation
• Offer localized equity and benefits through Deel’s global equity and benefits solutions
• Track worker engagement and feedback in real time with Deel Engage surveys
• Support your contractors and global workers using Deel’s powerful and versatile HRIS
• Ensure compliance at every stage with Deel’s built-in compliance module

Book a demo to discover how Deel can help you build a world-class, effective, and compliant incentive program for all of your people, wherever they are.