11 Types of Employee Incentives (And How To Use Them)

Employees are the lifeblood of any business. But how do you keep them motivated?

Many companies struggle with this, throwing random perks at employees that fall flat. Fancy coffee machines and casual Fridays might spark some smiles, but when it comes to driving real engagement? Not so much.

Incentives, when done right, can completely transform your workplace. From boosting productivity to retaining top talent, the right mix of rewards can align your team with your goals and set your company up for long-term success.

Let’s dive into what an incentive is, the different types of incentives, and how to use them effectively.

What Are Incentives?

At its core, an incentive motivates a person to take action or achieve a goal. For businesses, incentives are tools to align employees’ efforts with company objectives. The best employee incentive ideas go beyond mere paychecks by offering additional rewards—financial, personal, or professional—that inspire employees to perform at their best.

Effective employee incentive programs can:

• Boost productivity: Rewarding effort and outcomes encourages employees to deliver results consistently.
• Retain top talent: When employees feel valued, they’re less likely to jump ship.
• Align efforts with goals: Incentives ensure everyone is rowing in the same direction, creating a unified and high-performing team.

Types of Incentives

To truly inspire employees and drive results, it’s important to understand the wide array of incentives available. Below, we explore the major categories of incentives, how they work, and why they matter.

Financial (Monetary) Incentives

When people think of rewards, financial incentives often come to mind first—and for good reason. Money remains one of the most powerful motivators, offering immediate and tangible value.

Financial incentives can be direct and indirect.

Direct Financial Incentives

Direct financial incentives are performance bonuses. Such incentives are tangible, measurable monetary rewards that provide employees with immediate value for their contributions. These incentives are tied directly to specific achievements, ensuring a clear connection between effort and reward.

Direct financial incentives are bonuses, profit sharing programs, and stock options.

Profit Sharing

Profit sharing involves distributing a portion of a company’s profits among its employees. Unlike bonuses, which reward individual performance, profit sharing bonuses align employees with the company’s overall success. This creates a collective sense of responsibility and ownership.

For instance, a business that achieves a 20% profit margin might allocate 5% of those profits to employees, distributing the rewards based on their tenure, roles, or contributions.

Get the template: Our free profit sharing template includes a PDF guide + spreadsheet you can use to build out a basic profit sharing plan.

Bonuses

Bonus plans are a one-time reward provided to employees who meet or exceed specific targets. They’re often tied to measurable outcomes such as sales quotas, project completions, or company-wide achievements.

For example, a sales representative might receive a quarterly bonus for surpassing revenue goals, while a customer service team could be rewarded for maintaining exceptional satisfaction ratings. The beauty of bonuses lies in their flexibility: they can be customized for individual employee performance, but also for teams or even entire departments.

Stock Options

Stock options allow employees to buy company shares at a discounted rate, often after a specified period. By turning employees into shareholders, stock options provide a long-term incentive to stay with the company and contribute to its growth.

This approach is especially popular in tech startups, where cash flow may be limited. Employees who hold stock options benefit from the company’s success, so they have a strong alignment between personal goals and organizational objectives.

Dig deeper: Learn the differences between incentives, commissions, and bonuses.

Indirect Financial Incentives

Indirect financial incentives provide long-term value by addressing employees’ broader needs beyond immediate compensation. These benefits focus on security, well-being, and work-life balance, making them highly effective for fostering loyalty and reducing stress.

Indirect financial incentives are retirement benefits and health insurance plans.

Retirement Benefits

Programs like 401(k) matches or pensions ensure employees are financially secure in the long run. Employees who feel secure about their financial future are less likely to experience stress or seek opportunities elsewhere. Retirement benefits are particularly effective for retaining seasoned professionals.

Health Insurance
Healthy employees are productive employees. A well-rounded health insurance plan covering medical, dental, and vision needs is a cornerstone of employee satisfaction.

Beyond the basic requirements, companies that offer wellness programs, gym memberships, or mental health support demonstrate a genuine commitment to their employees’ well-being.

Non-Financial (Non-Monetary) Incentives

Non-financial incentives address employees' emotional and professional needs, focusing on recognition, growth, and workplace satisfaction. They create an environment where employees feel appreciated, empowered, and motivated to excel beyond financial gain.

Non-financial incentives are recognition-based incentives and career development incentives.

Recognition-Based Incentives

Recognition-based incentives focus on celebrating employees' contributions, reinforcing a culture of appreciation and belonging. These non-financial rewards tap into the human need for acknowledgment, fostering a positive and motivating work environment.

Recognition-based incentives are "Employee of the Month" awards, certificates, and plaques.

"Employee of the Month" Awards

Employees thrive when their efforts are noticed. Social recognition programs like “Employee of the Month” celebrate individual achievements and contributions. Public acknowledgment during meetings, newsletters, or social media posts can have a lasting impact, boosting employee engagement and morale and encouraging others to strive for similar recognition.

Certificates and Plaques

Sometimes, a physical token of appreciation—like a certificate, a personalized plaque, or even a small gift card—can be a meaningful way to say “thank you”. For example, a marketing team that successfully launches a campaign could be rewarded with custom trophies or exclusive team outings.

Career Development Incentives

Career development incentives are training programs and promotions.

These incentives empower employees by focusing on their long-term professional growth and personal goals. They go beyond immediate rewards, demonstrating a company’s commitment to nurturing talent and fostering a culture of continuous learning.

Training Programs

Offering opportunities for skill-building through workshops, certifications, or online courses shows that you value your employees’ growth. Companies that invest in upskilling their workforce often see higher job satisfaction and increased productivity, as employees feel more confident and capable in their roles.

Promotions

Clear career advancement paths motivate employees to consistently deliver their best work. Recognizing dedication and promotion from within not only boosts morale but also reduces turnover by demonstrating that hard work leads to tangible rewards.

Intrinsic vs. Extrinsic Incentives

Intrinsic and extrinsic incentives tap into different sources of motivation and, when used in tandem, they can create a powerful formula for boosting productivity and satisfaction in the workplace.

 Intrinsic Incentives

Intrinsic incentives are driven by internal satisfaction rather than external rewards. They stem from an employee’s personal connection to their work, such as finding meaning in projects or enjoying the process of problem-solving.

For example, an employee working on a sustainability initiative may feel fulfilled knowing their efforts contribute to a greater cause. Similarly, autonomy in decision-making empowers employees, allowing them to take ownership of their tasks and innovate without micromanagement.

This self-motivation is often long-lasting, as it’s rooted in passion and personal values, making employees more engaged and committed to their roles.

Extrinsic Incentives

Extrinsic incentives rely on tangible, external rewards to drive performance. These include bonuses, salary increases, recognition programs, and other measurable benefits.

For instance, a team might be motivated to exceed quarterly targets by the promise of financial bonuses or public acknowledgment of their success.

While these incentives provide immediate gratification and encourage specific behaviors, they often work best when paired with intrinsic motivators to create a well-rounded incentive strategy.

Implementing an Effective Incentive Program

Incentives can make or break your workplace culture. But how do you get it right? The key lies in aligning rewards with goals while keeping employees excited and motivated. Here's how you can build a program that gets results.

Assessing Organizational Goals and Employee Needs

What are you trying to achieve? Higher sales? Better teamwork? Clear goals are the backbone of an effective incentive plan. These help shape the type of rewards offered and the behaviors encouraged.

Next, flip the script—what do your employees actually want? Harvard Business Review made a study on why today's employees quit their jobs, and the main reason was that they felt dissatisfied with their growth opportunities.

Don’t let that happen. Conduct quick surveys or one-on-one chats to uncover their priorities. Is it pay raises? Recognition? Career growth?

Here’s the truth: motivation isn’t one-size-fits-all. While one employee might crave financial perks, another may value flexibility or skill-building. By understanding your team’s diverse needs, you’ll create a program that speaks directly to them—and keeps them engaged.

Designing a Balanced Incentive System

Ponder this: would you stay in a job just for the paycheck? Maybe temporarily. But when you aim long term, your incentive program needs balance.

Craft a compensation plan. Combine short-term wins, like bonuses, with long-term motivators, such as career development or meaningful work. Add a mix of intrinsic motivators, too. Why? Because people love feeling valued and purposeful.

Avoid making cash the star of the show. Money loses its motivational punch over time. Instead, make rewards holistic. Pair profit sharing with employee-of-the-month awards. Offer training programs alongside health perks. The more well-rounded your system is, the more powerful it becomes.

Monitoring and Evaluating Incentive Effectiveness

How will you know if your incentives are working? Track it!

Set clear KPIs from the start. For instance, are sales numbers climbing? Are employees staying longer? Is team morale up? Use the data to measure success.

But don’t stop there. Ask your team, "What’s working for you?" Their feedback is gold. If employees don’t care about the recognition programs or find the rewards unappealing, tweak the system.

Recognition goes a long way in making employees feel truly valued. So, are you hitting that mark? Evaluate, adjust, and keep innovating to stay ahead.

By blending goals, creativity, and constant improvement, you’ll create an incentive program that doesn’t just work—it wows. Your employees will feel appreciated. Your company will thrive. And you’ll see results faster than ever.

Examples of Successful Profit Sharing Plans

Profit sharing isn’t just about rewarding employees—it’s a proven way to build trust, loyalty, and long-term business success. Let’s look at two standout profit sharing companies: ConvertKit and Procter & Gamble.

ConvertKit

ConvertKit is a platform that helps creators grow their audiences and monetize their work. As soon as the company turned a profit in 2016 it launched a profit sharing program for its team.

Before sharing profits, ConvertKit sets aside funds to cover three months of expenses, equity growth, taxes, and even charity donations. What’s left is pooled and distributed to employees in a twice-yearly cash bonus.

ConverKit payout formula is this:

• 25% is based on how long an employee has been with the company.
• 75% is divided equally among staff based on their performance over the prior six months.

With this profit sharing plan, employees feel directly connected to ConvertKit's growth and achievements. This transparency and sense of ownership boost employee morale and retention. When employees see their hard work translate into real rewards, they’re more motivated to contribute to future success.

Procter & Gamble

Procter & Gamble, a global leader in consumer goods, has been at the forefront of profit-sharing since 1887. The founders, William Procter and James Gamble, introduced this initiative to foster employee loyalty and motivation. Over a century later, P&G continues to lead the way.

Here’s how it works today:

• A formula determines each employee’s share, factoring in base salary, tenure, and the company’s annual profits.
• Employees receive the profit share as an annual cash bonus, supplementing their overall compensation.

This approach has made P&G one of the most sought-after employers in its industry. Employees feel valued, and the financial incentive drives a deeper commitment to company goals.

Common Challenges in Incentive Programs and How to Overcome Them

Incentives can supercharge performance, but what happens when they miss the mark? Missteps in design can backfire—leading to disengagement instead of motivation. Let’s tackle two of their biggest challenges and how you can convert them into strengths.

Misalignment with Company Culture

When incentive programs clash with a company’s core values, they can feel forced or inauthentic. For instance, a company that emphasizes teamwork might inadvertently harm collaboration by offering only individual performance bonuses.

Solution

Build incentives that echo your values. If you're a company focused on innovation, offer professional development opportunities. For example, access to creative tools and resources such as design software, prototyping kits, or memberships to innovation-focused communities.

If sustainability is core to your company's mission, offer eco-friendly incentives, like donations to environmental charities, to your team in their name, or give them the chance to participate in volunteer days dedicated to local sustainability projects.

Perceived Inequity Among Employees

Nothing sours motivation faster than the sense of unfair treatment. Ever seen a high-performing team member walk away because they felt undervalued? Uneven reward distribution often creates resentment and division.

Solution

Build transparency into the process. Clearly communicate the criteria for rewards and ensure they are objective, measurable, and inclusive.

If offering individual bonuses, consider multiple categories of achievement—such as customer satisfaction or teamwork—to involve more employees. Additionally, a mix of individual and team-based rewards can bridge the gap, acknowledging everyone’s contributions.

Wrapping It Up: The Right Incentives Drive Results

The right incentive program can be a game-changer, aligning your team with your goals while boosting employee morale, productivity, and retention.

But crafting an effective program takes more than good intentions. It requires thought, strategy, and the right tools. That’s where ShareWillow comes in. Our software makes it easy to design and manage profit-sharing plans that motivate your team and drive results.

Ready to take the guesswork out of incentives? Book a call with our team today and discover how we can help your business thrive.