How to create employee incentive programs for your small business

Editorial Team

9 min read
Co-workers looking at computer

Employee incentive programs take time and, occasionally, some finagling, to become the effective initiatives they can truly be. By mixing and matching the best incentive ideas and keeping your employees’ needs in mind, you can find incredibly powerful ways to motivate your team and help increase your chances of organizational success.

What makes an incentive program work?

There are many ways to design employee incentive programs for small business. For an employee incentive program to be effective, it must:

  • Have a clearly defined goal: What are you trying to do with your incentive program? Are you looking to motivate workers to sell more? Are you trying to reduce turnover? Are you attempting to boost morale? Knowing where you want to go with your program will help you design an initiative that’s more effective.
  • Focus on that goal: Don’t get distracted by what’s trending. If you want to revamp your program and that new idea fits, incorporate it. But don’t utilize an idea just for the sake of it, especially if it doesn’t align with your overarching goal.
  • Leverage the spirit of competition (to a point): It’s okay to encourage competition between team members, as long as it’s all in good nature. Who can sell the most steaks? Who can get the most loyalty program sign-ups? Post updates for your team to see so they all know who’s ahead and what number they have to reach to secure the top spot.
  • Be transparent: Speaking of posting updates, you should always be as transparent as possible, not only about who’s winning each contest but also about your criteria, how things are tracked and judged, etc. This will help avoid any confusion and hard feelings. Some rewards may be permanent or long-running enough for you to add them while writing your employee handbook.
  • Make sure it’s not all or nothing: Awarding only first-place wins can breed resentment and possibly cause morale to plummet. Consider naming a top three, instead, and wipe the slate clean between contests or time periods to give more people a chance to succeed.

Types of employee incentive programs

There are a multitude of employee incentive programs, most of which have been proven effective. But the program you ultimately choose will depend on your goals, your employees (what motivates them?), and what’s feasible for your business. Here are some ideas:

Compensation incentives

Compensation-based incentives, such as bonus structures for small companies, use monetary or compensation-related awards to motivate and inspire.

Annual incentives

Also known as a “stay bonus,” annual incentives involve giving money to employees who stay on board for a certain length of time. The length of time required should be outlined ahead of time, often as part of an initial sign-on contract, and reviewed in a timely manner once that milestone is crossed.

Sometimes, annual incentives are tiered, with employees getting gradually larger bonuses at the one-, two-, five-, and 10-year marks.

Referral bonuses

It’s often said that the best employees come as the result of referrals from current employees. That’s likely because few people are willing to recommend a candidate who would reflect poorly on their judgement.

Offering a referral bonus could help bring in more qualified applicants, and you may even find that the team is stronger as a result of existing bonds.

Sales commission

One of the most straightforward incentives on this list, sales commission involves paying employees based on how much they sell.

Commissions may be:

  • Percentage-based: Pay salespeople a percentage of every contract closed or item sold, such as a straight 10% no matter the total value of the sale.
  • Flat rate: Pay out a flat rate, such as $5 or $100, for every sale made, regardless of how much the contract is for.

Some people choose to combine the two commission options, offering a flat-rate payout up to a certain amount, then adding a possible percentage-based commission for sales over a predetermined threshold.

Hiring bonuses

Though hiring bonuses and referral bonuses are often used interchangeably, they’re actually two different concepts. Whereas referral bonuses are typically open to all employees who recommend a future hired person, hiring bonuses are usually reserved for hiring managers or those in an equivalent position.

Hiring bonuses are only compensated after an actual hire, and the payout is usually awarded after the new employee stays onboard for a certain amount of time. For instance, he or she may have to stay in the position for six months to a year before the hiring manager is eligible for the bonus.

Profit-sharing plans

This idea is based on the concept that the team that plays together, wins together. People tend to feel more invested in the success of their company when that success translates into a win beyond the normal biweekly paycheck. Profit-sharing plans spread the wealth, so that eligible employees take home a portion of the profits they helped generate.

These plans may be tiered, rewarding more “points” and therefore a larger portion of the profits are based on seniority, position, or other criteria.

Holiday bonuses

Ever given out a $50 check to employees right around Christmas? That’s a holiday bonus, and it’s a great way to thank employees when the money may be needed most. It’s like a gift and a reward all in one.

Holiday bonuses may be universal, wherein every employee gets the same amount, or they can be percentage-based, with employees receiving a bonus based on their existing salary.

Business-wide incentives

Business-wide incentives use rewards beyond cash to help motivate and engage employees. Incentives may be tangible or experience-based.

Ability to earn time off

This incentive gives employees the ability to earn paid time off (PTO) in exchange for meeting certain standards or goals, such as:

  • Wrapping up a project early
  • Selling the most of a certain product
  • Getting a certain number of customer surveys/positive customer feedback

Keep in mind that “time off” doesn’t have to mean an entire week or an entire day. You can give out time off in hour increments, to be used at the employee’s discretion, offer extra-long lunches, or provide a Friday or Monday off for a long weekend.

Health/fitness incentive program

Studies show that healthy employees are more productive, call out sick less often, and tend to have better mental outlooks. All of these benefits work for both the team members and your company, so offering a health/fitness incentive program can be a win-win.

Your program could use outside vendors, perhaps giving a discounted gym membership and then rewarding employees based on their check-ins, or you could give points based on other criteria:

  • Signing up for the staff 5k running team
  • Showing up to morning yoga or meditation sessions
  • Attending nutrition-based lunch-and-learns
  • Running an office-wide weight-loss contest

Recognition of work

Rewarding employees for their hard work draws a clear line between effort and outcome, but it can be difficult to compare output across different positions and departments.

Some ways to make this reward fair are:

  • Listing goals for each position/department and making sure employees are clear about expectations
  • Asking employees to nominate colleagues who are doing a great job
  • Asking department heads to nominate employees who are exceeding expectations
  • Asking clients/customers to nominate stand-out employees

Rewards can be in the form of money, a gift card, company swag, etc.

Incentivize new customer loyalty sign-ups

Experts say loyalty programs increase purchases by 20%, so finding a way to increase loyalty sign-ups can translate into quite a large jump in revenue. Get your employees in on the act by encouraging them to push loyalty programs and rewarding them for every sign up.

You’ll need a way to track this. Look for a POS system that can capture info, including who put in a sign-up and when that sign-up happened. Then create and share contest info so employees know where they stand.

This is also a great exercise in improving customer service and selling the best aspects of the business. Employees know they won’t get a loyalty sign-up from an unhappy customer, so there are extra reasons to deliver a stellar experience and talk up upcoming events, discuss how great the new chef is, and so on.

Benefits of employee incentive programs

Why take the time and money to create an employee incentive program in the first place? There are quite a few reasons, all with one common thread: what benefits your employees can also benefit you.

  • Improve retention. A strong incentive program can help boost employee retention by giving your team more to work toward. Additional compensation beyond salary helps make your company more attractive than the competition, and it can make the day-to-day grind more exciting, too.
  • Help achieve shared goals. You have business goals you want to achieve, and incentivized employees can help you get there. Say you need to sell a certain amount of a product. Focus your bonus structure on sales of that product and you could meet or exceed the goal.
  • Boost morale. Competition can help make employees more engaged, and engaged employees are generally happier and more invested in the business.
  • Happy customers. Reward employees for positive customer feedback and they’re going to be far more conscious about those all-important customer interactions.
  • Increasing motivation. It’s easy to get caught up in the daily grind and to get complacent. Incentive programs can help “wake up” your team and give them extra reasons to pay attention, try new things, offer interesting ideas, and find creative ways to solve problems.

Employee incentive ideas for small businesses can help breathe new life into your business. It could take some trial and error to find out which program works for you, but involving your employees in that discussion could make the process much simpler — and much more rewarding overall.

Interested in learning about employee management tools that can help you streamline and improve your business? Reach out to a Clover Business Consultant to find out how we can help.


This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.

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