How to Incentivize Employees

There are different scenarios where you might be focusing on how to incentivize your employees. You might be looking to hire new employees, for example, which is incredibly challenging right now.

Employee recognition

Hiring new employees and retaining them is probably one of the biggest problems businesses are facing this year.

There are talent shortages, and employees are leaving their positions much more freely than ever before. There are more open jobs than employees are willing to take, and you may need to get creative to bring qualified applicants through your door and accepting positions.

Another reason to think about how you incentivize employees could be to boost productivity. You might be in a situation right now where you’re trying to do more with less overall, meaning you need to up the output.

A third reason was somewhat touched on above, but it’s retention. Following the pandemic, employees are very willing to leave their job, and you have to get creative in keeping them on board.

The following are ways to incentivize employees to achieve one or all of the goals above. Some of the ways to best incentivize employees don’t require money, which could be necessary for your business at this point.

Stock Options

It is possible to use employee stock options as a way to incentivize workers. Many consultants who specialize in executive compensation say that stock options remain a valuable tool. As an employer, you need to manage those stock options well and know how and when to use them appropriately.

There are a lot of things to consider.

First, what’s the market like? You want to make sure your options aren’t underwater in the near future because it could disincentivize your employees to stick with you.

Stock options, particularly in a startup environment, can help with creativity, innovation and teamwork. However, your lower-paid employees might not find it very incentivizing—they might prefer cash.

Some companies will let their employees decide what they want their compensation mix to look like.

With stock options, there’s typically a date listed when the options begin to vest or when the employee can sell their stock. The contract will also show the number of shares an employee can sell.

There are a few different ways a stock owner can exercise their options. They can buy the stock with cash, or they can buy shares and sell them. The third way is to exercise their option and then sell enough stock to cover all the fees and taxes.

With stock options, there’s an incentive for employees because if the company does well, then the stock options will be more valuable. Your employees may be more inclined to focus on their productivity as a means of boosting earnings.

Plus, as far as retention, with stock options, employees are typically required to work for the company for a certain amount of time before exercising them.

If you want to offer equity as an incentive, you can always come up with a plan that works specifically for your company and your employees. For example, maybe you create agreements with employees to get more equity vested if the company is valued higher. That means everyone will work hard to make the company more valuable to own a more significant piece.

Employee recognition award

photo credit: TSLAC / Flickr


According to the Harvard Business Review, 40% of employees say they would put more energy into their work if they received more recognition.

Recognition can be completely free, and it’s often one of the simplest but also most effective ways to incentivize your employees.

Recognition works well when it’s public, but it doesn’t always have to be.

It can take some time to get to know your employees individually to figure out how they might feel best being recognized because not everyone is the same.


Profit-sharing is a great way to create a culture of ownership in your business. When employees are rewarded financially based on their contributions to the business’s success, they feel like owners; therefore, they think and behave like owners.

Profit-sharing is also a great option because it creates a direct link between hard work and reward.

In some ways, employee stock options are a form of profit-sharing, but it’s not the only option.

For example, you can use performance-based incentives instead, meaning your employees are given direct cash and bonuses to meet certain performance levels. This might be company-wide or individually.

Idea-Based Rewards

If you want innovation and thinking outside the box, then you might have what’s sometimes called an idea bounty. Your employees can present a complete idea that includes specific processes to improve the business.

Then, their coworkers vote on the plan. If an employee’s idea wins the vote, then the employee receives a financial or reward-based bounty for their concept.

It could be a small reward for smaller solutions, or a much bigger one, depending on the topic at hand and how much it could positively impact your business.

This creates a strong culture of innovation and healthy competition.

Data scientist training program

Invest In Your Employees’ Growth and Development

Your employees want to feel like they’re valued. Above all else in many cases, feeling like their employer is investing in them is a top priority. Employees who feel valued are going to be more productive and are likely to stay with you longer.

With that in mind, find ways to invest in your talent.

This could mean offering leadership training to prepare them for growth within the company or offering mentorship opportunities. Ongoing training is also a way to incentivize employees through growth and development.

An employee is going to be more loyal if they feel like you see a future with them, and you’re willing to invest resources into making that happen.

Upskilling your talent has apparent benefits for you as an employer as well. You create your own talent pipeline, which may help you weather ups and downs in the larger job market.


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