Using Financial Incentives to Motivate Employees

Financial incentive programs are designed to inspire employee loyalty and increase productivity among employees. For all financial incentive programs, your employees need to understand the criteria for receiving the incentives and how the amount is determined. Here are the most common financial incentives:

  • Stock options: When you grant your employees stock options, you give them the right to purchase company stock at a fixed price (usually below market value) over a certain amount of time.

    Stock options encourage staff members to operate more as business partners, tying personal reward to the company’s financial success.

  • Profit sharing: Companies that have profit-sharing programs set aside a percentage of their profits for employees. The better the company does, the higher the profits and the more money the employees receive. When employees have a financial stake in the company, they tend to work harder and smarter.

    Profit sharing plans can be a good alternative for small companies who do not have enough employees or assets to find a good 401(k) plan provider.

  • Raises: In most companies, raises are a once-a-year event greatly anticipated by employees. The amount generally varies depending on the individual’s performance and the philosophy of the company.

  • Bonuses: Bonuses occur one time per year or at a certain number of predetermined times each year. This extra cash is by no means guaranteed and can range from as much as several thousand dollars (or more, depending on the job) to nothing at all.

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