Employee motivation is a key concern for businesses, with low engagement costing the global economy $8.8 trillion. To avoid lost productivity and high staff turnover, employers need to boost morale by showing appreciation to their workers—and monetary rewards can do just that.
Financial incentives help to improve individual motivation as well as overall performance, creating a positive work environment. Employees whose managers are great at recognizing them are more than 40% more engaged than those whose managers are not.
So, how do monetary incentives work? In this post, we’ll discover how they drive motivation, as well as showing you some examples of employee rewards and best practices for implementation.
What are monetary rewards?
Monetary rewards are cash sums (or gifts with a specific monetary value) given to employees in recognition of their achievements at work. They are paid on top of the employee’s regular wages and company benefits, and may be part of a wider recognition program.
Types of reward can include:
- Spot bonuses
- End-of-year bonuses
- Salary increases
- Extra time off
- Gift cards
- Reward points
- Profit sharing
- Stock options.
Some employers provide monthly stipends for specific things like commuting expenses or gym memberships. But although cash rewards for employees are the most common type of perk, it’s possible to offer “experiences” such as tickets to an event.
Monetary rewards programs are designed to recognize high performance and encourage employees to strive for excellence. Creating a direct link between effort and reward improves motivation and helps businesses to attract and retain top talent.
How monetary rewards can drive employee motivation
Now let’s take a closer look at exactly how monetary rewards are beneficial for employees and employers alike.
Shows employee appreciation and recognition
We’re not suggesting that your employees only care about the money—but financial rewards are definitely a good way to show that you appreciate their hard work. Employees need to know that what they do is valuable to the organization, and truly valued by the higher-ups.
A fair wage is a basic expectation, but additional monetary compensation offers full recognition of a job well done. Rewarded employees will feel good about working for you, especially if you personalize the incentives to demonstrate appreciation for individual milestones.
Provides a sense of financial security
Financial rewards are particularly welcome in times of economic uncertainty. When employees know that bonuses or pay raises are on the table, they’ll feel less anxious about money. And reduced stress means better engagement levels at work.
A monthly stipend is an ideal way to help employees with rising living costs. For example, you could stipulate that the money is used to cover the cost of commuting, home office equipment, or professional development. This will have a positive impact on recruitment as well as employee retention.
Motivates employees to achieve specific goals and targets
You can tie your monetary incentive program to specific goals for individuals, teamwork, or the company as a whole. This might mean a spot bonus for a particular result, or an end-of-year payment for everyone. Either way, employees are motivated to work harder when there’s a prize to collect.
For example, Cooleaf partner Synovus Bank leveraged incentives to motivate bank tellers to increase deposit referrals, a central focus for their sales team in 2023.
The Synovus team partnered with Cooleaf to create the “Great Rate Referral Rally” challenge, which included 100 Cooleaf reward points for every referral sent for a Deposit Opportunity, and 1000 points for every referral sent which resulted in a closed opportunity. To further coach their bank tellers, Synovus also used Cooleaf’s platform to distribute training resources and share success stories.
The result? An 11% increase in the amount of deposit referrals sent per week. Not only did the program drive bank tellers to increase referrals, but it also improved team morale and promoted their organizational culture.
Creates a sense of healthy competition
You have to be careful about pitting employees or teams against each other, but a little friendly competition is a good thing. A gamification element adds excitement and an extra level of motivation. Seeing their peers receive rewards will inspire others to try to match them.
This ensures that individuals push themselves to achieve new heights, while teams are incentivized to support and encourage one another. It all translates into increased employee engagement, successful collaboration, and improved quality of work.
Improves job satisfaction
Receiving monetary rewards also helps employees to feel happier in their jobs. They can see that they’re getting a quantifiable return on the work they put in, while the knowledge that this work is appreciated brings a boost in confidence and self-esteem.
As well as relishing the challenge of working toward a particular goal, employees will be motivated to learn new skills and put themselves forward for higher positions. Reward and recognition helps to foster team spirit—and happy employees lead to happier customers, too.
Provides direct feedback on their performance
Apart from linking rewards to organizational goals, you can provide performance-related rewards for individuals or teams who meet or exceed expectations. For example, salary increases and end-of-year bonuses are often based on employee performance evaluations.
Monetary compensation recognizes that an employee is performing well, and that the company is impressed with their efforts. They’re likely to strive even harder to maintain that reputation and reap more rewards, which reinforces positive behavior and continuous improvement.
Helps maintain motivation over time
The idea is that monetary rewards encourage employees to stay with your company for many years and always perform to the best of their ability.
Both these outcomes give them the opportunity to develop their careers and achieve higher positions, so there’s a sense of progression that bolsters employee morale and motivation.
You’re also demonstrating that engagement and a desire to succeed are key parts of the company culture. Rewards are an investment in future growth, both for the employee and the business. For example, profit-sharing schemes give everyone a stake if great results are achieved.
Best practices in implementing monetary rewards
We’ve explored the many advantages of a monetary reward system, but there are some important considerations for making it a success. Start by talking to your employees about their needs and preferences, showing that you genuinely want the scheme to improve their lives. Then implement the following best practices:
Clearly communicate the criteria for earning rewards
You need to define the criteria for employee incentives and create a structured policy for the reward system. Communicate it clearly to everyone in the organization so that they know where they stand and what they have to do to unlock the benefits.
For example, if you’re offering a home office budget or a stipend for a specific purpose, outline exactly what they can use it for. Clarify the thresholds for redeeming rewards points, and state the frequency of performance reviews. This transparency will help to build trust.
Finally, remember that planning is key. You should carefully consider your bonus scheme with your finance department and use cloud software for cash flow management tools to help you forecast your budget. In doing so, you’ll be able to calculate your rewards accurately, making it easy to communicate what rewards you’re offering.
This is crucial, as nothing will undermine your scheme or demoralize your staff more than having to reduce or remove a bonus that they were counting on.
Use performance metrics to determine eligibility
Performance metrics are an ideal way to determine employee recognition, as you’ll have concrete data to back up your decisions. You might use specific KPIs for each department or team, or base end-of-year bonuses on overall company performance.
This method is an effective morale booster for everyone—top performers are motivated to continue their excellent work, while others are inspired to perform to higher standards. Just make sure the criteria is fair. For instance, don’t base rewards on overtime if not all team members are eligible for it. And if you want to adjust the metrics, let everyone know.
Distribute rewards promptly to preserve their impact
It’s no use saying that you’ll reward employees at a specific point (such as reaching the end of a project or a personal milestone) but then making them wait. This leads to a sense of disconnect between effort and reward, and will cause disengagement, demotivation, and a lack of trust.
It’s important to reward them swiftly so that they associate the result with specific performance or behavior. That way, other employees will know what they need to do. An efficient payroll and human resources team should be able to distribute monetary rewards promptly.
Develop reward budgets that align with company growth
We already mentioned aligning the rewards system with company goals, but you also need to ensure the budget for the scheme is aligned with business growth. Much as you might want to reward all your hard-working employees, it has to be financially viable.
Business budget management software will help you to find the right balance, and understand tax laws around monetary incentives. Remember, rewards can be effective without being overgenerous. When employees are aware that cash bonuses are dependent on company success, it’s an extra incentive.
If they’re distributed promptly and fairly, monetary rewards are a great way to increase employee satisfaction. You can tie them in with organizational goals, link them to individual and team performance metrics, and introduce healthy competition.
Motivating employees boosts engagement, productivity, and retention, reducing the costs of staff turnover and recruitment. It also leads to better collaboration and a sense of company culture, with everyone working toward overall success.
When combined with non-monetary incentives such as public recognition and flexible working, monetary rewards have a positive effect on employee well-being. Review the incentive plan regularly, provide guidance and support to help them earn rewards—and they’ll reward you with hard work and loyalty.