When you want to encourage staff to raise their game you can turn to carrot or stick. Most businesses take the carrot approach by offering employee incentives to enhance performance. In this article, we explore the range of incentives available, we take a look at employee share ownership schemes and consider what you need to think about when introducing incentive schemes.
There’s Plenty of Choice When It Comes to Employee Incentives
There are three main categories of employee incentives ranging from less to more formal schemes:
Letting your staff know you value them can be achieved in many different ways including staff parties, team building days, family events, birthday celebrations and team lunches to name but a few. These one-off activities can often be provided in response to a specific achievement, like a team delivering a major project milestone successfully. Or they can become part of the way you engage staff and create a pleasant and appreciative working environment. For example, by providing a cheese board or cake to celebrate birthdays.
Thanking employees for their hard work via a monetary reward of a simple vote of thanks is a great way to ensure employees’ ongoing engagement. Recognition often takes the form of a company-wide recognition scheme that rewards a framework of specific activities and/or behaviours designed to support the business’ strategic objectives.
Recognition can also include programmes like:
- long service awards that reward loyalty to the organisation usually for milestones like 5,10, 15 years of service and beyond
- employee referral schemes that encourage staff to introduce job candidates – this helps the organisation save on recruitment costs, a proportion of which is passed on to the staff member making the referral
Pay increases aren’t always about keeping pace with the salaries other companies are paying. Compensation can be used to reward top performers for their contribution as well as ensuring your business retains their services.
Bonuses are another, less expensive, way to reward individuals as – unlike a pay increase – bonuses do not increase the cost of the individual’s benefits like pension contributions. Bonuses are usually calculated on the basis of the business’ and the individual’s performance as a percentage of employees’ pay. More senior employees with greater impact on the business tend to be entitled to larger bonuses than less senior staff.
Profit sharing is another option that we’ll explore in more detail next.
Employee Incentives Ownership Schemes
As a business owner you have a vested interest in how well your business performs. But if your employees turn up simply to secure their base pay and their job, they have less reason to care about your business’ success. That’s where employee ownership schemes come into play.
They allow employees to acquire shares in a business giving them an additional financial reason to care about the performance of your business. The better the business does, the more individuals’ shares are worth. Which provides an added employee incentive for staff to enhance their performance and productivity.
Big businesses like Royal Mail, ASDA, Tesco and Morrisons all provide share ownership schemes for their staff. But this doesn’t exclude smaller businesses from offering these kinds of programmes as there are a range of schemes – including tax efficient options – available.
Employee ownership schemes fall into three categories:
- Share option schemes – employees can buy shares at a set price on a specific day.
- Share gifting scheme – your company can choose to give shares to staff for free. The shares are usually held in trust for a period of time.
- Share purchase scheme – where staff can buy shares in the company, normally at a discounted rate.
Most schemes require staff to hold onto their shares for a fixed period of time – this makes it more likely that the share price will increase providing larger payouts and it also supports staff retention as any profits are usually forfeit if staff leave before the vesting period.
What Should You Employee Incentives Be?
Employee incentives should reward activities and/or behaviours that support your business’ goals for the short and long term. However, incentive schemes can have unintended consequences, so you need to carefully consider what you want to reward people for.
Employee ownership programmes need careful communication to ensure staff understand how the scheme works and how they can impact the business’ – and therefore their shares – performance.
Any programme needs to be communicated clearly and should have transparent processes and rules so all staff have the opportunity to engage effectively with the scheme. This will also ensure you get the best return on any payments you make.
Setting up an employee incentive scheme can be tricky so it’s worth working with an experienced HR consultant to ensure you consider every angle including the legal and tax perspectives.