Pros and Cons of Employee Incentive Programs

Employee incentive programs can be hugely impactful for retention, engagement, and performance within the workplace—when done correctly. A well-run rewards program has the potential to increase employee engagement by 20 to 30%, according to Mckinsey research. A bad one can do the exact opposite, causing team members to feel excluded or overlooked. By examining these pros and cons in-depth, it’s possible to come up with proactive solutions that can boost results and give hard-working employees the recognition they deserve.

Pros and Cons of Employee Incentive Programs

Many of the cons of employee incentive programs are closely related to the pros. They typically occur when a strategy is poorly implemented, but reviewing them will help you better understand why incentives underperform so you can address the root causes accordingly.


Engagement: A high-performing incentive program can boost employee engagement by 20-30%. These programs are typically characterized as personalized, simple, and equitable.

Competition: Healthy competition in the workplace can improve productivity and performance while encouraging accountability and validation, based on several independent studies. Of course, these programs need to be targeted, fair, and transparent.

Profit: There is a direct connection between engagement and profitability. Gallup reports that companies with highly engaged staff are 23% more profitable, and incentives are proven employee engagement drivers.

Metrics: An incentive program with clear benchmarks and tracking enables businesses to easily understand their ROI and how to boost it even further.


Fraud: Managers may inappropriately give out rewards or use the program for personal gain. This can result in workplace disengagement that hurts productivity.

Bias: A glaring issue with incentives is survivorship bias. While it has a dramatic name, it simply means that we tend to expect success based on past events. With workplace incentives, that means managers may give more rewards to top performers without recognizing the contributions of those who aren’t.

Cost: An incentive program is a risk from a cost perspective. It’s often difficult to forecast the ROI when looking at abstract goals like employee engagement and well-being. Without clear goals and metrics in place, such programs can turn into financial burdens rather than value drivers.

Management: Businesses may focus on the implementation of their incentive program, but overlook long-term management. Without a clear understanding of long-term needs, enterprises may not allocate the right resources.

Incentive programs can work very well for improving employee happiness and engagement, which, in turn, drives business results. Even better, most of the cons are easy to address by seeking out a program that tackles them directly.

Solutions to for Smartly Tackling Incentive Program Cons

Large incentive programs that offer travel, incentive pay, or large bonuses may have strong returns, but they’re not sustainable. They also don’t address the problems that are often associated with these programs. Someone receiving a trip or big bonus is likely already a top performer. An employee who is simply not engaged—which Gallup reports makes up about 68% of the U.S. workforce—isn’t going to be inspired by that because it seems far out of reach.

Smaller, more flexible rewards can incrementally drive improvements in this regard. The Incentive Research Foundation found that a 15% performance increase occurs the first time incentives are offered for completing a task. A simple way to take advantage of this is to set basic metrics for employees and then place them in a reward lottery for a small incentive.

For example, if a call center has a goal to reach a first contact resolution rate of 50%, every employee who achieved that rate for the week can be placed in a random lottery to receive a gift card or other digital incentive—encouraging baseline performance in the process.

Another strategy you can utilize is the spot incentive. Employees who go above and beyond can receive immediate recognition for their work. Using a combination of these two strategies can help make rewards programs more equitable for everyone. Of course, reward delivery is crucial here, and so is using a comprehensive solution that empowers businesses to easily send rewards to employees in the form of digital gift cards.

With Tango Card, for example, managers and other leaders can easily send small rewards to their staff for immediate recognition. To supercharge their rewards programs and keep track of delivered gift card, some organizations choose to use the Rewards as a Service (RaaS®) API. It simplifies program management while eliminating risks of cost creep and fraud.

When comparing the pros and cons of employee rewards programs, the benefits far outweigh the risks. There are solutions in place to manage costs, fraud, and overall program management. By offloading those tasks to a third-party solution, businesses can receive the benefits while avoiding unnecessary risks. 

To enjoy the pros and avoid the cons of employee incentive programs, consider adding Reward Link® to your strategy. Email to learn more, or request a demo to see how it works.

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