The moment your small business grows to accommodate employees is a crucial time. Finding full-time employees and keeping them on the payroll can be costly, so you must ensure they will bring value to your business.
In some businesses, particularly if selling is a part of the role, performance rewards can be a way to push employees to do their best work. But not all businesses will find it a suitable way to boost employee performance.
So, what are the pros and cons of offering performance rewards?
What are Performance Rewards?
Performance rewards are generally financial, for example, performance-related pay (PRP), though they don’t have to be. At the most basic level, it just means rewarding employees for exemplary performance in their job.
It’s up to you how you track performance and what you deem to be good enough to deserve a reward. In a small business, you’ll likely be working with your employees on a one-to-one basis quite frequently, meaning you’ll have a good idea of how well they’re working and whether they deserve a reward.
For example, the basis for a reward could be numerical – increase sales by 5% or social media followers by 10%. Or, you could work on a more personal, individual basis with each employee.
The Benefits of Performance Rewards
Performance rewards are an effective way to make employees feel like their work matters. If they feel like managers recognise their work, they’re more likely to be loyal to your organisation and put in future work.
Aside from individual benefits, there are also benefits to your company as a whole. Incentivising hard work will motivate your staff to work harder, boosting company growth. This could make a massive difference if your company is still in its first few years of operation.
The Disadvantages of Performance Rewards
Applying performance rewards, particularly financial ones, may be challenging for some small businesses. If you’re still in the early stages of building your business, offering financial rewards – whether a bonus or other benefit – can be risky and cause more losses than gains.
In some cases, performance rewards can also negatively affect your employees’ mental health. If they feel like they’re continually ‘underperforming’, job satisfaction can plummet along with their self-worth and confidence.
Additionally, studies have shown that performance-related pay can result in employees working intensely, leading to more stress.
Our Advice
It’s difficult to tell how much of an effect performance rewards will have before you implement them. However, employment professionals agree that these policies should be designed and implemented very carefully for them to be effective.
If you’re considering implementing some kind of performance-related pay, whether in the form of a bonus or increased salary – it might be worth talking to your employees first. This can be an excellent motivator for some individuals, leading to increased loyalty, but it could result in the opposite for others.
