Incentive programme – what is it and why create one?

In the business world, employee engagement is fundamental to success. How can an incentive programme not only increase productivity, but also improve loyalty and atmosphere in the workplace?

In this article you will find out:

• What is an incentive programme?
• What is the relationship between an incentive programme and remuneration?
• What is included in an incentive programme?
• What are the most important principles of incentive programmes?
• How to create and implement an incentive programme?
• What are the benefits of incentive programmes?

Incentive scheme – definition

An incentive programme is a structured set of activities or strategies with a variety of objectives – they are designed to increase engagement, improve performance or loyalty of employees, customers or other target groups. They use a variety of methods – from rewards and recognition, to various types of non-wage benefits, to personal and professional development – to stimulate and maintain motivation.

The history of incentive programmes is closely linked to the development of industry and the changing needs of the labour market. Their origins can be traced back to the early years of the 20th century, when, in response to the needs of growing industrial production and the desire to increase productivity and employee satisfaction, companies began to introduce various forms of motivation^[1].

An incentive programme is a reward system within a company designed to increase employee engagement and improve employee performance.

Definition of an incentive programme

In the 1920s, as the production of cars, white goods and other machinery massified, companies needed salespeople to attract customers and encourage them to buy. Large organisations such as Coca-Cola and General Electric began to assign salespeople specific territories to operate in and set quotas to measure their performance. To keep salespeople highly motivated and create healthy competition between them, companies also began to reward them with bonuses^[2].

In the 1940s, incentive programmes began to be used to drive specific behaviours, such as selling a specific product at a specific time. In the 1950s, due to changing tax laws, companies began to look for ways to motivate employees that did not involve money directly – this is how employee benefits came about. They motivated with the promise of prizes, company cars, luxury holidays or memberships to elite clubs^[3].

In the 1990s, companies began offering the opportunity to earn shares to motivate employees to work more efficiently, as the final payout was linked to the success of the company, ensuring that employees would work hard to make the company profitable and prosperous. Today, companies offer a variety of incentive programmes, including gifts, incentive trips, company cars and other employee benefits^[4].

Incentive programme vs. remuneration

Remuneration, i.e. the basic wage plus benefits, is the fundamental component of compensation for work. It is the expected, regular and direct value that an employee receives in return for his or her work. It provides the employee with basic financial security and is directly related to the duties, qualifications and level of responsibility of the job. It is a mandatory element of the contract between the employee and the employer and is the basis for assessing fairness and equality in the workplace.

An incentive scheme, on the other hand, should be seen as an additional set of tools, over and above salary, to encourage employees to be more productive and committed at work. These can include a variety of elements – bonuses, rewards, profit-sharing or non-wage benefits (e.g. healthcare, flexible working hours, remote working opportunities).

The relationships between these two types of work compensation are complex. First and foremost, salary forms the basis for incentive programmes. High remuneration can increase the effectiveness of incentive programmes, as employees who feel that their basic financial needs are met may be more receptive to additional incentives.

Incentive programmes can reinforce the positive effects of remuneration and give additional incentives to work beyond standard requirements. At the same time, they allow for a more individualised approach to employees’ needs and expectations. Not every employee is motivated solely by remuneration; for some, intangible aspects such as development opportunities or a sense of belonging to a team can be just as important. They can also be quickly adapted to changing market conditions, business objectives or individual projects.

Elements of an incentive scheme

The elements of an incentive programme are diverse and can be tailored to specific needs, goals and corporate culture. They can be divided into wage and non-wage elements. Salary ones include:

• Bonus and bonus schemes are financial rewards given for the achievement of specific goals or outstanding performance. They can be individual or team-based and often depend on measurable performance.
• Profit-sharing plans allow employees to share in the financial success of the company. A portion of the profits is distributed to the team, usually based on their salary and position.
• Stock options or shares in the company give employees the opportunity to own a part of the company, which can increase their involvement and sense of shared responsibility for company performance.
• Referral programmes can motivate employees to find candidates for open positions, with benefits for both parties – a new employee for the company and usually extra money for the referring employee.

Non-wage benefits, on the other hand, are intended to improve the quality of life for employees and create more attractive workplaces. These most often include:

• private medical care,
• insurance,
• pension funds,
• sports cards,
• flexible working hours,
• possibility to work remotely,
• initiatives to support the health of employees – healthy meals, gyms, free fitness club memberships or company sports sections,
• organisation of team-building events,
• additional paid days off as a reward for outstanding performance.

In addition to the above-mentioned elements of incentive programmes, rewards and recognitions should also be mentioned. These can take the form of material rewards (e.g. vouchers or gifts) or non-material rewards (e.g. recognition at company meetings or plaques of honour). With their help, not only can exceptional achievements be recognised – they can also be part of building a culture of mutual respect and recognition within the company.

Although employee training and development should be permanent elements of a company’s activities, this does not change the fact that they often feature as elements of incentive programmes. They are implemented through courses, workshops or participation in conferences. This not only improves employees’ competences, but also sends a signal to them that the organisation cares about their development and sees long-term value in them. Promotion opportunities work on a similar basis – a clear career path can be a strong motivator. It is worth remembering that research confirms this – 94% of employees stay with companies that have invested in their development^[5].

The company culture and work environment, although more difficult to measure, can also influence the incentive programme and employee engagement. Aspects such as work atmosphere, employee relations, management style, values and the organisation’s mission have a huge impact on team motivation, and building a positive and open culture can translate into market success.

Key principles of incentive programmes

Creating an effective incentive programme requires adherence to several principles. Here are the most important ones:

• The incentive programme should be easy to understand. Clearly defined criteria for rewarding or allocating benefits help avoid misunderstandings and ensure the fairness of the process.
• The objectives of the incentive programme should be aligned with the employees’ capabilities and the realities of the company. They should be clearly defined, measurable and achievable.
• All employees should have an equal opportunity to receive rewards in the incentive programme. This helps build positive relationships within the team and prevents feelings of favouritism or discrimination.
• In an effective incentive programme, performance should be evaluated regularly and employees should be informed about the results of their work.
• People are motivated by different factors, so an effective incentive programme should take this diversity into account by offering different types of rewards. A personalised incentive programme is wanted by 47% of employees^[6].
• An incentive programme should be closely linked to the company’s overall goals, strategy and values. It should also support and promote them.
• Effective and regular communication with participants is essential for an incentive programme to be successful.
• The incentive programme itself should also be evaluated. Performance analysis and feedback from employees can help to adjust it to better meet its objectives.

Creating and implementing an incentive programme

Creating an incentive programme starts with understanding your company’s business objectives and determining how it can contribute to achieving them. This requires an analysis of the current market situation, including employee performance and organisational culture in a company. It is also worth talking to employees to understand their needs, expectations and preferences.

The next stage is to design the programme itself. Based on the information obtained, its specific and measurable objectives can be defined, as well as the types of rewards that will be used, the criteria for awarding them, and the ways in which the programme will be communicated and promoted to employees.

Once this work has been completed, approval must be obtained from the board of directors and other key stakeholders – their involvement is important to the success of the programme, particularly on issues of budget, resources and communication.

You can then move on to implementation. It is worth starting by preparing the organisation – leaders and managers should understand the purpose of the incentive programme and be committed to promoting it.

Communication with employees is equally important – they need to be communicated the objectives of the programme, the benefits of participation, the rules of participation and how it works, and they need to be involved in the implementation.

The tools and resources needed for the programme should also be prepared – IT systems for tracking results, promotional materials or application forms.

Once the programme is up and running, it is important to track the progress of employees and collect data on outcomes – both participants in the programme and its effectiveness. It is also a good idea to implement mechanisms to collect feedback from participants to identify potential problems more quickly.

During the course of the programme, it is important to regularly recognise and reward employee achievements. Publicly recognising successes can significantly contribute to motivation and engagement, as well as promoting a culture of appreciation throughout the organisation.

A comprehensive evaluation of the programme’s effectiveness should be carried out at the end of the programme cycle. By analysing the results, employee feedback and comparing achievements with objectives, it is possible to assess the extent to which it has contributed to the organisation’s goals.

Benefits of incentive programmes

Effective incentive programmes make employees more engaged and feel valued, resulting in greater productivity and loyalty to the company. It also often results in greater creativity and more innovation.

And it should not be forgotten that incentive programmes help to build a strong organisational culture and make employees feel part of the team. This is also supported by the opinions of employees themselves – 88% of them believe that valuing their contribution to the success of the company is the basis of motivation^[7]. This not only creates a positive atmosphere in the workplace, but also attracts new employees and reduces turnover. This translates into lower costs associated with the staff recruitment process and training of new people.

Incentive programmes can also help improve business performance. By focusing on organisational goals and rewarding employees for performance, companies can increase their competitiveness, which translates into increased customer satisfaction and improved brand image in the marketplace.

Incentive programmes are also invaluable for employee development. Investing in the people who work for your company not only builds their loyalty and improves satisfaction, but also helps to assemble a team of highly skilled and committed professionals, which is the most important ingredient for the long-term success of any organisation.