3 Ways Short-Term Incentives Improve Employee Performance

Short Term Incentive

Goal setting is the lifeblood of a successful business – it’s how real work gets done. But how do companies encourage employees to actually achieve their goals? In this blog, we discuss short-term incentives, including how they work and three ways they improve employee performance.

The phrase “the Great Resignation” might be tired – but it’s still continuing in full force and even changing the very fabric of the labor market as we know it. 

People want higher pay, but they also want more than that: to feel fulfilled by their jobs. That’s why one in five workers say they will change jobs in the next year. So, before companies can worry about achieving their goals, they have to first focus on keeping employees around long enough to work towards them. 

Enter: short-term incentives. 

Short-term incentives can boost the intrinsic feeling of fulfillment and morale at an organization and lessen employee turnover rate in the long term. When employees know they are valued at work, they are more likely to do a better job and stay at their jobs for a longer time period. 

What Are Short-Term Incentives?

Short-term incentives provide employees with compensation for reaching a company’s short-term goals. 

The short-term aspect of these goals is important. Having a clearly defined period of time to reach a specific result makes the goal tangible and within reach, which can be motivating for the employee tasked with working towards that goal. It also gives employees a concrete opportunity to share in their organization’s overall success, because the short-term goal is tied to long-term business objectives.

More frequent incentives are the current trend. For example, some work environments have quarterly, monthly or even daily incentives. These shorter-term or incremental goals support the annual or longer-term goals.

Some examples of short-term incentives include: 

  • Annual cash bonuses
  • Overtime pay
  • Holiday, weekend and shift work
  • Differentials and premiums 
  • Payments for units produced

How Do Short-Term Incentives Work?

Short-term incentives can be awarded in two different ways (or a combination of both). 

  1. To many members of the team based on the progress they have made as a group.
  2. To individual employees based on their specific contribution and performance. 

For example, a particular department at a company might be working towards a certain short-term goal, and if the department collectively reaches that goal, the employees in that department equally split the incentive. But each individual team member likely has their own marching orders that work towards hitting that short-term goal, so they might receive an incentive upon completing their specific accountability.

Spot bonuses or recognition awards are potential short-term incentives that happen more frequently and may be tied more to exemplifying company values. Regardless of how you choose to award short-term incentives, they’re certain to have a positive impact on your team’s performance. Here’s how. 

3 Ways Short-Term Incentives Improve Employee Performance

1. Boosts Employee Retention

As mentioned, the monetary value and personal fulfillment an employee gets from a job is a big deal. Short-term incentives raise the monetary bar and reassure employees that they are appreciated. 

Many factors make a difference in boosting employee retention rates in the long run, like:

  • Positive work environments
  • Healthy office relationships
  • Detailed employee benefits packages 

However, studies show that short-term incentives are vital factors and make a big difference in the lives of employees. These incentives are more than just monetary bonuses and say a lot about an organization and the way it treats employees. 

Improving employee retention directly results in improving employee performance. When your team actually wants to be there, they are more likely to get important work done.

2. Clearly Defines Goals for Employees

Implementing short-term incentives to reach goals requires both employers and employees to take a good look at those goals, how they connect to corporate objectives, and what specific tasks are required to actually work towards them. 

Employers will have an opportunity to voice their priorities and strategies, and employees won’t waste time on tasks that are irrelevant. By having clearly defined goals, employees will remain more informed and will have the tools to accomplish more.

3. Motivates Employees

Implementing short-term incentives is a great way to keep employees motivated and engaged. When there is hard work to be done, employees often get burned out or experience frustration in the workplace. 

Short-term incentives can lessen the negative impact of this work and help employees stay motivated to get the job done. They will also feel valued and a sense of accomplishment for staying motivated and completing the task. 


In this employee-centric market, it’s always important to prioritize employee growth and fulfillment in the workplace – and short-term incentives are a great place to start.

However, managing various short-term incentives for a high number of employees (especially in a global company) can be difficult. That’s why many companies turn to compensation management software – a tool that brings the entire compensation cycle together, from normal base pay to short-term incentives and more. Different rules and budgets, performance values, and market data can all be incorporated into the system to help employers make the best decisions and keep track of employee compensation.

HRSoft’s compensation management software, COMPview, systematically guides, controls and simplifies the calculation and allocation of merit, bonus and equity awards that drive employee engagement, performance and retention. See how it works by requesting a demo today.