The Psychology of Incentives

Employee retention is a troublesome issue for most companies. In fact, many experts estimate that $11 billion is lost annually to employee turnover.

Additional statistics are equally alarming.

· 59% of US workers are likely to leave their jobs for new opportunities (Adobe)
· About 70% of Americans are disengaged at work (Gallup)

On the other hand, according to HR Dive, 75% of causes of employee turnover are preventable.


Many employers offer a performance-based incentive pay in an effort to build engagement – which lies at the root of retention – and company loyalty. Some incentive programs provide individual bonuses based on an employee’s achievements, while others offer profit-related pay, which is based on reaching goals company-wide. Various studies indicate the potential for success – especially with individual incentives, but in reality, employers must dig deeper for lasting change.

In order to build robust employee-engagement levels, companies must first understand what ‘makes people tick.’ For example, according to Maslow’s hierarchy of needs, every person has five basic needs that must be met before he/she can grow and succeed.

1. Physiological needs – food, water, breathing, shelter, clothing.
2. Security and safety needs – physical protection, health and wellness, financial security.
3. Social needs – family and friends, social and community or religious groups, all of which bring a sense of belonging.
4. Esteem needs – appreciation, value, respect.
5. Self-actualization – knowledge of who they are and confidence that they are fully using their talents, capabilities, and reaching their potential.

Incentives then must do more than offer pay for performance. They must tap into the needs of individuals. They must offer:

· Valence: something that is of personal value to the recipient.
· Instrumentality: the opportunity to be instrumental in the success of a program; the knowledge that he/she is connected to the big picture.
· Expectancy: the confidence that he/ she is capable of the task they are assigned; the goal they must reach to receive the reward.

When taking the needs of individuals into consideration, engaging/retaining your employees involves more than performance-based pay incentives. Consider this list of essentials.

According to a Modern Survey (2014), two of the strongest engagement drivers are the belief in senior leadership – how your C-suite conducts itself is crucial – and opportunities for growth and development. From this, we can conclude that:

· A management staff who connects to employees and upholds company policies, transparency, integrity, etc. from the top down is critical.
· Offering onsite training, encouragement for continued education via flexible work times and financial assistance, opportunities to participate in webinars, technology training, etc., and a promote-from-within-first policy are extremely effective

A PWC survey of Millennials reveals that 52% of Mills value career progression and 35% appreciate the quality training and development programs. These incentives support, rather than eliminate, financial-based incentives – which appeal to 44%.

Access to digital capabilities is another hot incentive. Various surveys and studies confirm that nearly 60% of those surveyed said they switched jobs to gain digital skills and 40% said they left because their current company did not keep up with state-of-the-art technology. Workers shared that the most significant factors in accepting and then staying with a position were a company’s use of the most up to date tools (80%), innovative culture (72%) and reputation as a leader in digitization (62%).


A company’s success in attracting, hiring, and then retaining talent correlates directly to their ability to engage their employees. Incentives play an influential role in engagement, but focusing only on performance-based incentives may be more detrimental than helpful. Successful incentive programs understand their employees’ needs, providing a safe place where they can connect and belong, earn a stable living, and actively participate in the company mission in a way that brings value, utilizes their personal abilities, and encourages growth.

If you’re looking to hire new employees but don’t know where to start, contact Award Staffing. We will be able to help you find the right employees for your unique business needs. If you’re searching for more tips and trick on how to improve your company’s workforce, check out our hiring solutions blog.



Want to learn more about how Award Staffing can help your organization with your staffing and employment needs? Start by providing our team with a few pieces of information about yourself, and we will take care of the rest.

  • This field is for validation purposes and should be left unchanged.