How to create a profit incentive plan for employees

Recognition and rewards can be effective and affordable ways to motivate your staff to perform better. You can use them as management tools to increase productivity and profit, and to help ensure your employees feel valued. This encourages further effort, which is a win–win situation for any business.

It’s easy to confuse a recognition and rewards program with commission income, performance bonuses, or perks like a company car. Like financial incentives, they can increase motivation and performance, but recognition and rewards usually cost your company less, and can often be a more cost-effective motivational tool.

The value of recognition and rewards

A recognition and rewards program is attractive to employees and can help you recruit or retain top staff. It also shows your company values and rewards performance and productivity, which will attract people with those values and encourage other employees to aspire to those values.

Giving recognition for good effort has a number of benefits, including:

  • Making staff feel thanked and appreciated.
  • Increased staff motivation, loyalty and morale.
  • An increase in job satisfaction.
  • Linking rewards to extra effort and output.
  • Reinforcement of desired attributes in employees and an increase in productivity.
  • More focus on achieving targets.
  • Better quality work.

Your recognition and reward options

Implementing a recognition and rewards program is a long-term strategy that needs the active support of management to succeed.

Formal and informal rewards

For day-to-day work, there are a number of informal ways to provide instant recognition and rewards. You can:

  • Thank and praise a person immediately for their efforts.
  • Mention the impact of their efforts on the business and how it helped.
  • Follow this up with an email, copied to the rest of the team.
  • Document the effort and recognition for reporting purposes and staff appraisals.

You can also implement a range of formal, periodic options such as:

  • Vouchers.
  • Recognizing the ‘Employee of the month’.
  • A point system for large, periodic prizes.
  • Project completion rewards.
  • A half-yearly or annual company dinner where rewards and prizes are handed over in front of family and peers.

You could also recognize an individual for outstanding effort or a team for their effort at the end of a project or successful year. Remember to give a gift that reflects the impact of the individual’s or team’s effort.

Putting your recognition and rewards scheme to work

Finding the right forms of recognition and rewards for your staff is the hardest part of implementing a recognition and rewards program. Be careful not to choose rewards that appeal to you.

Identify what motivates your staff

Keep the following factors in mind when selecting recognition and rewards that will appeal to your staff.

  • Age
  • Nationality
  • Culture and religion
  • Values
  • Income level
  • Hobbies and interests

Goals and aspirations

The best way to find out what will motivate your staff is to ask them what holds the most appeal. Find out what they’re saving up for, what they value in life, and their personal and work goals. Different people will place different values on a company dinner with free alcohol, a horse ride in the country, or a day off work.

Aim to involve your staff in the planning of your recognition and rewards program. This’ll help to identify rewards that excite them and they’ll probably have some good ideas about how to implement the program too.

Dos and don’ts

Your recognition and rewards scheme should be an integral part of your business strategy. It should be used to support the long-term goals of your business. This requires careful planning and attention to detail.


  • Involve your employees in planning your rewards program. It needs to be something they’re excited about if it’s to work well for your business.
  • Ensure the program’s rules and requirements are clear and understood by everyone. Documenting the process will help to avoid any misunderstandings.
  • Ensure the recognition and rewards scheme is based on individual or group performance and is run fairly and transparently.
  • Set clear targets for formal recognition so people know what they need to do. Ensure the targets are realistic. If your targets are not realistic, your program could have the opposite effect and result in demoralized staff.
  • Get feedback on how the program is working (or not).
  • Allocate money for your recognition and rewards program in your budget.
  • Ensure the program is managed and administered properly – with a focus on frequency, transparency and promptness.


  • Make promises and break them. It’s important the rewards program runs to schedule and that people get the recognition and rewards they expect, when they expect them, based on the frequency and rules of your program.

Next steps

  • Decide how a recognition and rewards program for your business could help you achieve your long-term business goals.
  • Seek staff input on the planning and implementation of the program.
  • Ensure your program is fair and transparent and that the rules and requirements are clear. This will help to avoid any misunderstandings or resentment.

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