What is the Difference Between Benefits, Perks, Gifts, Awards, Incentives, and Rewards?

Mary Madhavi Reddy -

While most companies talk about employee perks, benefits, incentives, gifts, awards, and rewards in the same breath, the truth is, that they each have their distinct characteristics and impact people in different ways. Interchanging them is like confusing butter with clarified butter or cream with yoghurt!

It is imperative to understand the differences between perks, benefits, awards, rewards, incentives, and gifts, and personalize them for your employees while ensuring your rewards and recognition program fits within a greater employee engagement strategy aligned to your business goals.

Or you could end up with more than one disgruntled employee giving your organization a bad review on Glassdoor!

“Imagine contributing to a project that saves the company thousands of dollars a year and getting a company coffee mug, regardless of whether or not you actually drink coffee!”

Lowballing your high performers with a free coffee or a dollar store gift set is the surest way to lose top talent. But not recognizing or rewarding your employees at all will make you lose your credibility as an employer. The modern workforce seeks to work in purpose-led organizations.

That means you need to make a distinction between good performance, productivity, recognition of achievements, and efforts and tailor your employee rewards and recognition program accordingly. Only then will your employees be delighted and actively contribute to the company’s growth.

69% of employees say they would work harder if they felt their efforts were better recognized. (Source:HBR)Companies with highly engaged workforces outperform their peers by 147% in earnings per share. (Source: Dale Carnegie)

Recognition and Rewards: Intent vs. Action

Let’s understand the difference between rewards and recognition for what they are:

Recognition is free-flowing. It is the intent for

  • Motivation
  • Performance
  • Productivity
  • Behavior
  • Contribution
  • Creativity
  • Effort
  • Innovation
  • Attitude

A reward is an action in the form of

  • Incentives
  • Benefits
  • Perks
  • Gifts
  • Awards

Explaining the Difference Between Benefits, Perks, Gifts, Awards, Incentives, and Rewards

The modern workforce has outgrown the traditions of a standard pay package, a year-end bonus, and the odd ‘gift’ for service tenure.

Rewarding your employees will boost their confidence but differentiating between the various types of reward categories will give them a ‘sense of purpose,’ making them brand ambassadors of your organization.

"A good employee experience leads to a good customer experience, which then feeds back to your employees a sense of purpose and satisfaction, creating a virtuous circle.” (Source: PwC CFO Pulse Survey)

It is this distinction that we will look at in greater detail.

What are incentives?

An incentive is an object, an item of value, reward, or privileges that motivates employees to do more and meet the goals set by the employer. An incentive aims at improving the overall performance of an organization.

Closely tied to performance management, the definition of incentives has evolved over the years. Earlier, companies would only offer sales incentives to employees that were involved in direct revenue generation. Today, an incentive can take the form of an object, a desirable action, an event, or even a valuable ‘gift’ depending on the kind of behaviour the organization is trying to encourage or the talent it is trying to attract.

Link the incentive to the KPIs that help grow your business, and you are looking at a recipe for success. Tom Gosling talks about the findings from PwC’s Psychology of Incentives study | PwC

Examples of incentives: The modern approach

Employees that work (or aim to work) in modern purpose-led organizations are usually incentivized by:

  • Gamification (use points, badges, leaderboards, and challenges to enthuse employees or attract talent)
  • Sales and partner incentives (to accelerate the sales funnel)
  • Bonus (for efforts, milestones, and outcomes)
  • Remote working (offering work flexibility is the quickest way to win an existing/prospective employee’s heart)
  • Social and networking events (town hall meetings, potluck party, day-out for team building, all serve to inspire and motivate the workforce)
  • Learning opportunities (upskilling, certifying, or training employees serves a double purpose – employees feel gratified, and your business benefits from the skillsets. Who doesn’t want to join a company that offers to pay for certifications?)

Example of incentives in real-time

What are the benefits?

Employee benefits also known as fringe benefits, as defined by the US Dept of Labor, are government-mandated, non-wage employee compensation, over their salaries and wages, that can be both financial and non-material.

The fact that they are mandatory does not mean an employee is automatically entitled to all of them. In reality, benefits are a company’s way of telling its employees how much it cares for their wellbeing and financial security.

The amount and type of benefits are usually left to the organization’s discretion, and they differ from region to region (subject to local laws). For example, almost every company offers health insurance, but the coverage varies from company to company and is sometimes based on location.

The same goes for paid leaves since every organization has a different leave policy.

56% say that a quality employee benefits package impacts their choice of employer. | US Chamber of Commerce

Examples of employee benefits: The modern approach

Benefits are divided by the National Compensation Survey (NCS) into five major categories:

  • Paid leaves (including vacation, maternity, and sick leaves)
  • Supplementary pay (stock options and 401(k) plans)
  • Insurance and wellness programs (health insurance including dental, and wellness programs including health and wellbeing apps)
  • Retirement (social security)
  • Legal benefits as defined by state and federal laws (including worker’s compensation, Medicare, tax assistance, unemployment benefits, and overtime pay)

Examples of employee benefits in real-time

  • Apple offers its employees extended paid vacations while their medical coverage plans include fertility treatments

What are perks?

Employee perks are non-wage offerings that extend beyond salaries and benefits and are an important component of company culture.

No, we’re not talking about the ‘perks of being a wallflower,’ though the movie teaches us the value of feelings, and their outcomes when ignored or appreciated.

Here, the word ‘perks’ refers to corporate offerings that go above and beyond an employee’s salary and benefits package.

Since they are a gesture of goodwill from the company and dependent on the corporate budget, they vary across the industry. Perks are a way to gauge the strength of an organization’s culture and values, thereby acting as a form of branding.

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Learn how to run an effective employee perks program with our guide.

From employee discounts to gym memberships, modern companies usually tailor their perks to foster loyalty and attract new talent.

Here’s what Gallup has to say about it:

Examples of employee perks: The modern approach

The following perks have been seen to tip the scales in favour of one employer over the other:

  • Employee discounts (membership discounts, employee cashback, season passes)
  • On-site fitness centres and/or wellness allowances (gyms, spas, yoga studios, swimming pool, tennis courts)
  • Free in-office lunch/snacks/coffee/happy hour (who doesn’t like a free meal? Did you know Google’s mountain view HQ has eight large cafeterias and several smaller ones staffed by five-star chefs?)
  • Community initiatives (modern employees look for charitable initiatives and ways to give back to the community. Deloitte is famous for its IMPACT day)
  • Retreats and time off (including paid team building events)
  • Entertainment (christmas party, BBQ, picnic lunch, annual day)
  • Relocation allowance (if the new hire has to relocate to a different city/country)
  • Child-care and tuition assistance (on or off-site, tuition assistance/reimbursement)
  • Mobile phone/workstation/broadband (mobile, laptop, data, and usage allowance)
  • Flexible working hours (think post-covid work arrangements)

Examples of employee perks in real-time

Zappos offers its employees extensive perks, from a 40% Zapponian discount on everything on Zappos.com to 20 paid vacation days a year.

What are gifts?

Employee gifts are presents given to teammates on special occasions like birthdays, achievements, work anniversaries, completion of certain milestones and other occasions.

Employers commonly utilize gifts to boost workforce morale and employee engagement and express gratitude and appreciation.

Corporate gifting is not a new concept. Traditional gifts include the ubiquitous coffee mug, general gifts on birthdays and work anniversaries, or something to celebrate festive occasions.

But if you still rely on the old practices, you would be hard-pressed to satisfy your modern workforce. Instead, it would be better to give your employees simple, meaningful gifts commensurate to the occasion, effort, or achievement.

“Showing your appreciation of your staff’s efforts by means of gifts and benefits is good for morale, but you need to take care to do this in the most tax-efficient way.” (Source: Dodd & Co Accountants)

Examples of gifts for employees: The modern approach

It is essential to differentiate between taxable and non-taxable gifts as they can have significant financial implications for your employees.

1. Taxable gifts: They fall under federal laws as they are considered near-cash gifts.

  • Gift cards/cash vouchers (exceeding $50 per employee)
  • Cash bonus
  • Instead of salary

2. Tax-free gifts: where the cost of the gift, including VAT, does not exceed £50 per employee.

  • Personalized items (gift sets, stationery – so much more than a coffee cup!)
  • Discount coupons and vouchers (retail, hospitality, travel, health, and wellness)
  • PAYE settlement agreements (company foots the tax and national insurance bill for any taxable gifts)

Employee gifts in real-time

  • Roto-Rooter changed its generic gifting policy by revamping its entire selection of gifts and matching them to the employees’ local culture.

What are awards?

An employee award is a prize or a token of appreciation given to an employee for accomplishing something exceptional, like doing incredible work or contributing to a specific field.

Recognizing your employees’ efforts through words and actions is the surest way to show your employees you value them but reinforcing performant behaviour (not just performance) through awards is what distinguishes a ‘great workplace’ from a ‘good’ one.

It is well-documented that real-time awards lead to better team morale, lower employee attrition, better retention, and, more importantly, higher productivity. Apart from fostering a sense of accomplishment in the employee, awards also engender brand loyalty with five-star reviews on Glassdoor!

According to Gallup, lack of recognition is a significant reason why employees leave their jobs, and the more talented the employee is, the faster they leave.

Examples of employee awards: The modern approach

Since they are usually non-cash benefits that fly under the government’s tax radar, there is no limit to a company’s creativity when deciding upon recognition awards:

  • Performance awards (project milestone, extraordinary performance, spot award)
  • Customer service awards (rockstar award, service excellence, going above and beyond because a happy employee will keep the customer happy)
  • Leadership awards (for mentorship, inspiration, gratitude)
  • Peer-to-peer recognition (public, emails, bravo, shout-out)
  • Social shout-outs (on the company intranet, LinkedIn, appreciation email, wall of fame)
  • Paid day-off (birthday, anniversary, go-live burnout)
  • Team awards (an inscribed trophy, team off-site or retreat, team lunch)
  • Work anniversary (five-year, ten-year, or more)
  • Company-branded corporate merchandise (t-shirts, bottles, stationery items)

Example of employee award in real-time

  • Fairmont Hotels and Resorts fosters a value-based culture where coworkers give employee-of-the-month awards to their colleagues under their ServicePlus Colleague Recognition Program.

What are rewards?

Employee rewards are monetary or non-monetary compensation, over the salary, used to acknowledge their efforts and motivate them.

If awards recognize performant behavior, rewards are a way to recognize actual performance along with the intent and effort. Data across the industry shows that modern employees look towards their companies to incent and reward them.

What differs is the kind and type of reward offered to each employee; this is usually based on performance and productivity or measurable KPIs that contribute to business success.

This, according to Josh Bersin, is what the future of corporate rewards will look like:

Examples of modern employee rewards

Directly tied to performance and behavior but separate from salary, rewards can be further divided into

1. Monetary rewards

  • Bonus or hike (cash reward for a productive quarter or revenue generation)
  • Redeemable gifts cards (tax-free up to $50)
  • Redeemable point/link/SMS-based rewards (gift cards, retail items from a catalog, gift vouchers, cash backs, discounts)

2. Non-monetary rewards

  • Appreciation (a thank you note, email, social shout-out, a pat on the back)
  • Rewards for emotional wellbeing (subscriptions to Apple Music, Spotify, Headspace, Calm radio)
  • Customized experiences (a season pass to a game, a club membership, or something based on employee preferences)
  • CSR initiatives (either by donating to charity or hosting community events)
  • Paid time off (this is apart from the paid leaves offered under benefits, examples being parental leave, vacation, and bereavement leave)

Examples of employee rewards in real-time

  • Bayer Canada’s innovative “You Make Life Better” program, which offers instant and bespoke rewards for innovation, has been putting them on Canada’s Top 100 Employers list for more than a decade now.

The Magic of the Moment

When agonizing over the different types of rewards and recognition categories, it is crucial not to lose sight of the moment. Rewards are not half as effective if they are delayed.

Equally important is the fact that each employee’s contribution brings something different to the table and the reward for it needs to be just as thoughtful and meaningful.

But how do you reach that sweet spot where each employee feels motivated, fulfilled, appreciated, empowered, and it translates to the success of your business?

It's by choosing the right rnr platform that lets you continuously improve your employee rewards and recognition program using employee feedback!