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The Empuls Glossary

Glossary of Human Resources Management and Employee Benefit Terms

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Performance Based Rewards

Performance-based rewards are incentives that are only given out after a specific goal has been met. They are usually tied to a business goal that shows progress toward success. These incentives often include cash bonuses or stock options—or sometimes even both!

The idea behind performance-based rewards is that they align employee and company goals by giving individuals an opportunity to earn more money for their efforts. A performance-based reward system can help increase productivity and encourage employees to work harder because they have the potential to make more money if they do so.

What are performance based rewards?

Performance-based rewards are an incentive that employees receive based on their work-related contributions to the company rather than their time with the company. Performance-based rewards can take many forms, including stock options, bonuses, and salary increases.

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What are the types of performance based rewards?

There are two main types of performance-based rewards: 

  • Incentives: These are usually a fixed amount of money paid out at regular intervals, typically monthly. Incentives are often used as part of a basic salary package but can also be offered as an element in a total reward package. They may be tied to goals or other performance measures. 
  • Bonuses: These are lump sums paid in addition to base salary or wages. They generally have more flexibility than incentives because they don't have to be linked to specific goals or metrics.

What are the benefits of a performance based rewards system?

The benefits of a performance based rewards system include:

  • Motivates your employees to do better. The better they perform, the more likely they will receive something desirable. 
  • Encourages innovation and creativity. Employees who feel they have power over their destiny will likely develop new ideas and solutions when problems arise.
  • Improves employee engagement. Employees who feel they are being recognized for their achievements will be more engaged with their work and more likely to stay with your company.
  • Boosts productivity. If people are happy at work, they will do a better job, leading to increased productivity.
  • Ensures better quality of work. Employees will want to do their best work to get rewarded.

Why are team based performance rewards better?

Team-based performance rewards are a better way to motivate your employees. Here's why:

  • You can reward the whole team for their combined efforts.
  • It's more fun celebrating your employees' accomplishments.
  • Employees feel proud of their work and accomplishments, which leads to greater employee engagement and retention rates.
  • Team-based rewards give employees a reason to work together while completing goals, improving communication and collaboration between team members.

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What are performance-based rewards examples?

Some examples of performance-based rewards include:

  • Bonuses
  • Stock options
  • Annual bonus plans
  • Compensation plans
  • Profit sharing bonuses
  • Monetary incentives
  • Additional paid time off
  • Increased benefits or insurance coverage

How can rewards improve performance?

Rewards influence behavior by motivating recipients to learn a new skill or achieve a goal. When a reward is given, the recipient will feel motivated to work harder and perform better than before.

Employee pulse surveys:

These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).

One-on-one meetings:

Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.

eNPS:

eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.

Based on the responses, employees can be placed in three different categories:

  • Promoters
    Employees who have responded positively or agreed.
  • Detractors
    Employees who have reacted negatively or disagreed.
  • Passives
    Employees who have stayed neutral with their responses.

What are the advantages of performance based rewards?

The advantages of performance based rewards are:

  • Create healthy competition among employees.
  • Encourage employees to take on additional responsibilities or improve their performance.
  • Improve employee morale, which can boost productivity and make everyone feel better about coming to work every day.
  • Keep your organization up-to-date and innovative by encouraging new ideas from employees. 
  • Reduce costs by eliminating the need for layoffs or other cutbacks when budgets are tight.

What are the disadvantages of performance based rewards?

The disadvantages of performance based rewards are:

  • They can lead to unethical behavior.
  • When you reward someone, they expect it every time they perform well at work. If they don’t get it for one year, they may become disgruntled.
  • Some staff members may be perceived as unfair, who feel they are not being rewarded equally for their efforts or contributions.
  • Employees who work in teams may feel undervalued if they do not receive additional rewards despite working hard with their colleagues towards a common goal or objective.

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