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Employee Incentive Schemes

This employment guide offers some advice on how to incentivise and motivate your staff.


Every employer knows that motivating your staff is an important part of running a business. There are hundreds of publications on the subject of motivating staff and this guide is not designed to compete with any of them. It is a summary of approaches which have been tried and tested. It aims to introduce you to simple cost-effective motivators that work.

This document looks first at the different types of motivators, then at their uses and finally at how to create a simple bonus/reward scheme.



There’s no substitute for praise and recognition of a job well done. This should be included with any motivator and costs you nothing above a bit of thought. Maximise its effect by giving the recognition in front of the whole team. Give a tangible reward which your employee can take home and show to others to clearly demonstrate recognition.

Cash is best, isn’t it?

Employees are very likely to say that their favourite form of reward is cash added to their pay cheque at the end of the month. But this is not clear cut.

Despite the initial positive response, the money becomes quickly absorbed into the household budget and is never associated with the achievement of a target or as a reward for a job well done. In addition, by the time the money has been taxed and the National Insurance has been deducted the sum will not be what the employees thought they were going to receive anyway!

Gifts, vouchers and cards

Giving gifts is a tricky business. How do you really know that the gift you’re giving is really what your employee wants?

Vouchers are usually more welcome than physical gifts because they let the employees choose exactly what they want.

There’s also the unavoidable matter of the tax. Who is liable to pay it? Assuming that you’re not going to take the risk of not telling Her Majesty’s Revenue and Customs (HMRC), you either have to do the tax returns and meet the cost (with all the added administration this entails) or your employee will end up having to pay the tax, defeating the object of the reward!

There are ways to tackle the ‘tax problem’ with tax-paid gift cards such as the HR:4UK card for details.

Employee Reward Scheme

Self-funding bonus schemes

A bonus/incentive scheme which is self-funding needs to have a number of aspects:

Carefully costed

Cost the scheme carefully – what do you wish to achieve and how will it benefit the company? Is the bonus on offer actually obtainable by the employees? What is the company prepared to pass back to the employees for the achievement?

Many companies work on the following formula: – £1,000 sales target… normal profit on sale is 30 per cent so they split all profits over £1,000 equally between employee and company. The employee thus receives 15 per cent of turnover over £1,000.

The 15 per cent has to cover tax so that means a payout of 11 per cent for a cost-neutral scheme. To make the figures simple many companies make the payout 10 per cent of sales above the agreed target.

There are many other ways to calculate costings, this one is only given as an example.

Measurable rewards

Any scheme which rewards at the discretion of the management or is seen by employees as being open to being ‘doctored’, such as being based on the company profit, is unlikely to succeed.

Be achievable

Bonus schemes can be for a range of outcomes – increased sales, a reduction in waste or an improvement in productivity.

Whatever the objective, the targets set for triggering payment of a bonus or other rewards must be achievable. If the employees cannot see that the reward is within reach and that their efforts will help them achieve it, the scheme is likely to fail. If it is not achieved, it may actually become a de-motivator.

Be visible

Employees must be able to see how near they are to attaining the reward (a progress board on the wall is a simple but effective way to show this). This visible graph or information mechanism also motivates others as they can actually see what the top achievers are receiving.

Worth the effort

Your employees need to see that the reward is worth the effort. For example, £10 per sale after reaching 20 sales is not likely to motivate as much as £50 for 25 sales + £10 per sale thereafter.

Offer short-term results

A reward scheme must pay out in the short term. A scheme that rewards after one or two months is better than an annual scheme.

Schemes that take longer to pay out reduce the motivation to put in the extra work required.

If you do have to work on a long term basis, be careful about the way you update staff at the end of a month. For example it is better to say “If you keep this up, at the end of 12 months you will receive £xxx.” rather than “You have achieved £xx this month” because a single month’s figure will look much lower.

Getting it right

HR:4UK can offer advice and assistance on setting up effective incentive and bonus schemes.

For further help and advice, speak to one of our advisors by calling 01455 444222 or complete our contact form and an advisor will be in touch shortly.

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