Employee Rewards and Incentives: The Key Differences


Oct 10, 2023 • 9 min read

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When companies aim to motivate their employees better, they sometimes get confused about the difference between rewards and incentives. Some people even think these two terms practically the same thing.

However, it's important to know that there are clear differences between employee rewards and incentives. Understanding these differences can help organizations create employee recognition programs that really work.

What are Employee Rewards?

Employee rewards are a way to show appreciation and celebrate the effort and commitment of employees. Employee rewards are tangible items or experiences given to employees to acknowledge their hard work, performance, dedication, achievements, or behavior. 

Employee rewards are often viewed as motivators with a longer-term impact. They serve to foster commitment and loyalty within the company by demonstrating that employees' contributions are recognized and valued.

Additionally, rewards can stimulate employees by fostering a sense of healthy competition, inspiring them to exert more effort and achieve even better performance.

What are Employee Incentives?

Employee incentives are a way to motivate employees by encouraging them to reach particular goals or objectives. Unlike rewards, incentives are usually provided before employees achieve the desired objectives. They are meant to spark motivation and focus.

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Incentives are goal-driven and are usually coupled with a reward. While they are often in the form of monetary incentives, such as bonuses, and commissions, they can also take other forms, including job-related perks like laptop ownership.

Employee incentives are typically regarded as short-term motivators. They are employed to create a sense of urgency and concentration around a specific goal or terms.

Consistently utilizing incentives can be a particularly effective technique for motivating employees and helping them maintain their motivation.

The Difference between Employee Rewards and Incentives

The primary distinction lies in the fact that a reward is a tangible item or experience given to an employee, while an incentive serves as a motivating factor; it doesn't involve physically giving something to the employee upfront.

Instead, it inspires them to put in extra effort or surpass expectations with the promise of receiving a reward in the future. For example, when an employee goes above and beyond because they know a reward awaits them, that's considered an incentive.

Why is it Important to Reward and Incentivize Employees?

William James, a renowned psychologist, once said that the most profound aspect of human nature is the yearning for acknowledgment and appreciation.

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Just as recognition contributes to a positive workplace culture, rewards and incentives serve as the tangible expressions of that appreciation.

And this isn't just a nice sentiment; it's supported by compelling statistics that highlights its positive impact on organizations:

1. Reduced turnover rates

Deloitte's research reveals that organizations fostering a culture of recognition enjoy a remarkable 31% lower voluntary employee turnover compared to those that don't prioritize recognition.

This demonstrates that appreciating and celebrating employees can significantly enhance retention rates.

2. Enhanced business outcomes

Deloitte also found that organizations with advanced recognition programs are an impressive 12 times more likely to achieve positive business outcomes.

This underscores the correlation between recognizing employee contributions and overall organizational success.

3. Lowered frustration levels

SHRM's data illustrates that the organizations practicing a culture of recognition experience a substantial 28.6% reduction in frustration levels among employees.

This implies that recognition contributes to a more harmonious and content workforce.

4. Boosted employee engagement

Allocating just 1% of payroll to recognition, as reported by SHRM, results in a noteworthy 85% of companies noticing a positive impact on employee engagement.

It emphasizes how relatively small investments in recognition can yield significant gains in engagement and commitment.

5. Desire for more recognition

According to Psychometrics, when asked how leaders could improve engagement, a substantial 58% of respondents answered, "give more recognition." This highlights that employees value recognition and perceive it as a crucial element of their workplace experience.

How to Build an Effective Employee Rewards or Incentive Program?

Building an effective employee incentive or rewards program involves careful planning and execution. Here are some best practices to help you implement a successful program:

1. Create an inclusive work environment

  • Ensure that your employee rewards or incentive program is open to all team members.
  • Customize the program to suit different departments to ensure all employees receive appropriate recognition and motivation.
  • Make the program engaging and user-friendly so that all employees can easily participate.
  • Consider implementing a peer-to-peer reward and recognition platform where employees can acknowledge and reward their colleagues, promoting inclusivity and a sense of involvement.

2. Promote your incentive programs

  • Increase awareness of the program by creating a promotion and communications plan, involving your HR department.
  • Run ongoing campaigns to keep employees engaged and participating.
  • Utilize marketing efforts such as infographics, posters, and digital messages on platforms to tie the program into your company culture.
  • Incorporate information about the program in job advertisements and include it in your employee onboarding process to ensure new hires are involved from day one.

3. Set an example

  • Leadership teams should lead by example by actively participating in and advocating for the employee rewards programs.
  • Team leaders must demonstrate their belief in the program's vision and actively engage with it.
  • HR should provide training to leaders on how the reward programs work and the value they can bring to the organization.

4. Personalize employee incentives

  • Customize rewards or incentives to align with individual employee preferences and values.
  • Tailor incentives to be meaningful to your employees, as this will boost motivation to work toward program goals.
  • Consider adopting methods like employee journey mapping or design thinking to better understand employees' needs and preferences.

5. Get employee feedback

  • Collect feedback from employees to understand their needs and preferences regarding the incentive programs.
  • Create surveys to gather accurate data on how well the current program is received and gather suggestions for improvement.
  • Demonstrate your commitment to listening to employees by incorporating their feedback and iterating the program accordingly.

Empowering Employees to Choose Their Own Rewards

Choosing the best rewards and employee incentives depends on your organization's specific goals, budget, and company culture. A combination of both monetary and non-monetary incentives, tailored to your company culture, can create a well-rounded and effective employee reward program.

Furthermore, it's highly recommended to give employees the autonomy to choose their own rewards after successfully performing any tasks or projects.

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When employees have the freedom to choose their rewards in line with their personal needs and preferences, it can significantly enhance their sense of inclusiveness and happiness within the workplace.

Here's why this approach matters:

1. Autonomy breeds engagement

When employees have the freedom to pick their own rewards, they feel trusted and respected.

This sense of autonomy leads to increased engagement and a stronger emotional connection to their work. Employees no longer view their tasks as mere obligations but as opportunities for personal growth and fulfillment.

2. Inclusivity and personalization

Flexible reward systems allow for personalization. Employees can choose rewards that align with their unique interests and need, whether it's a e-voucher to their favorite restaurant, a wellness program, or pay their utility bills.

This level of personalization fosters inclusivity, as each individual feels valued and understood.

3. Increased retention and performance

Employees who feel valued and celebrated at work are more likely to stay with their current employer.

They are also more motivated to give their best effort. It's a win-win situation: employees are happier and more committed, while the company benefits from increased loyalty and enhanced performance.

4. The extra mile

When employees are personally invested in their work and their workplace, they often go the extra mile.

They contribute more than what's required because they genuinely care about the company's success. This level of dedication can lead to innovative ideas, improved teamwork, and overall company growth.

Refine Your Employee Rewards with Tada

If you're ready to boost your team's motivation and unsure about where to begin and how to get choose the right rewards, Tada can be a good starting point.

You can request our demo now and our team will surely will assist you in finding the perfect way to reward your employees and foster better engagement and loyalty in the workplace.

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