You want to reward employees, and the main way to do this is with pay increases. This can be done in various ways. In addition to or in lieu of pay raises, there are other ways in which to recognize employees’ good performance. Small businesses need to find ways to recognize employees in order to retain employees and stay competitive. Fortunately, there are options that can be used whatever your budget.
Ways to reward employees include:
Pay increases
Payscale’s 2026 Pay Trend report looked at what companies are doing in 2026 with respect to employee compensation. Here are some key findings:
- Peanut butter method for raises. 44% of companies are using peanut butter raises. They are called this because the budget for pay increases is spread among employees. For example, you may decide to give everyone a 3% or 4% pay increase. Administratively, these are simple to use because no performance evaluations are needed.
- Merit-based raises. 48% of companies are using merit-based raises. These are paid according to performance.
- Average pay increases. Pay increases have averaged 3.5% since the Spring of 2025. But smaller companies have been giving larger raises (4% for companies with 1-99 employees). And the percentage varies by industry.
Bonuses
Whether or not employers give peanut butter raises or personalized ones, they can also give bonuses. They can be:
- Incentive bonuses for meeting or exceeding certain targeted goals (e.g., a sales volume)
- Spot bonuses for immediate recognition of extraordinary work. These can be sizable monetary amounts or small amounts (e.g., gift cards).
- Year-end bonuses that often reflect a company’s annual performance
- Sign-on bonuses to attract new employees
- Retention bonuses paid to keep employees with the company
- Non-cash bonuses. These can be a day off with pay, tickets to theater or sports event, or other tangible gifts.
Other options
The list of ways in which you can reward employees is long. Here are some other ideas:
- If the business is incorporated, there are various ways to give employees an ownership interest in the business. This can be through stock options, immediate awards of stock, and Employee Stock Ownership Plans (ESOPs).
- Giving an employee a higher position in your company is an important way to recognize performance. This is especially helpful if you use the peanut butter approach to raises, so that outstanding employees can be bumped to a higher pay scale.
Final thought
Perhaps the best way to reward employees—one that doesn’t cost a penny—is a simple “thank you.”
As Mary Kay Ash, founder of Mary Kay Cosmetics, said: “There are two things people want more than love and money — recognition and praise.”
But employees won’t turn up their noses at a pay raise or other monetary recognition. Look closely at your budget to decide what you can afford to pay your employees. Then decide how best to do it.
Read more about retaining your employees at your small business can be found in this list of blogs here.
