The Do’s and Don’ts of Employee Incentive Programs
We’ve been discussing employee incentives as a potential tool for improving performance. If you've determined that incentives are a good fit for your organization and culture, the next question is how to implement them effectively.
Before launching a cash or award-based incentive program, consider these key dos and don'ts.
DO'S
Do tie incentives to specific, observable behaviors or outcomes. Employees should clearly understand what is being rewarded and how success is measured.
Do align incentives with organizational goals. The incentive should encourage behavior that advances the company's broader mission and strategy.
Do reward quality, not just quantity. Focusing only on output can unintentionally encourage shortcuts, errors, or poor customer service.
Do make incentives achievable. Goals that feel impossible often decrease motivation rather than increase it.
Do review incentive programs regularly. What works during one phase of organizational growth may become ineffective, or even harmful, later.
Do involve employees in the design process. Employees can often identify potential problems or unintended consequences before a program launches.
Do consider team-based incentives when collaboration matters. Individual rewards can sometimes undermine cooperation if success depends on people working together.
Do measure unintended consequences. Track not only the target behavior but also turnover, morale, quality, customer satisfaction, and collaboration.
DON'TS
Don't reward only what is easy to measure. Some of the most important contributions (mentoring, innovation, relationship-building, and culture-building) are difficult to quantify.
Don't create incentives that encourage employees to compete against one another unnecessarily. Excessive competition can damage trust, teamwork, and information sharing.
Don't reward outcomes that employees cannot reasonably control. When people feel they are being judged on factors outside their influence, motivation and trust decline.
Don't make incentive structures overly complex. If employees need a spreadsheet and calculator to understand how rewards are earned, the program is likely too complicated.
Don't let incentives replace good management. Clear expectations, coaching, feedback, and supportive leadership remain essential.
Don't reward short-term gains at the expense of long-term success. An incentive that boosts this quarter's numbers while damaging customer relationships or employee well-being can be costly over the long-term.
Don't rely exclusively on incentives to solve performance problems. Poor performance may stem from inadequate training, unclear expectations, insufficient resources, flawed processes, or leadership issues rather than lack of motivation.
Don't forget to ask whether the behavior should be incentivized at all. Some behaviors (ethical conduct, teamwork, treating customers respectfully) may be better established as expectations of employment than as activities people are paid extra to perform.
Above all, remember that employee incentives are just one tool in a leader's toolbox. Lasting performance improvement comes from a combination of clear expectations, strong leadership, effective systems, and a culture that supports success. Incentives work best when they reinforce these elements rather than attempt to replace them.
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