Incorporating Employee Rewards Into A Compensation Strategy

Motivate with purpose

Who doesn’t enjoy being rewarded for a job well done? Rewards can have many benefits for company culture and job performance, and should be a part of your overall compensation strategy. However, it’s important to be responsible in how you distribute them. You should maintain a consistent strategy to keep the distribution fair and balanced, but also in line with your organization’s goals and values. 

If not, you could face challenges with equity, fairness, or bias, which could have a negative impact on employee morale and company culture. 

Let’s discuss the benefits of employee rewards, the different types of rewards, and how you can ensure their responsible distribution. 

Benefits of Rewards

Rewards can have many positive impacts on employee performance and company culture, including increased productivity and enhanced job satisfaction. You will then have loyal employees and a positive company culture, which will attract and retain top talent for your organization. Rewards also encourage continuous improvement in your employees, which is a huge benefit for your business. 

Types of Employee Rewards

What types of rewards are the most effective in motivating employees, changing behavior, and keeping workers happy? It depends on your employees and can be different for each person, but giving employees the opportunity to earn a financial reward based on targets typically results in higher productivity. 

Here are a few examples of rewards:
 

• Intrinsic Rewards: Intangible motivators, such as personal growth, praise from admired leaders, or positive relationships with coworkers. They provide deep satisfaction and meaning.
• Extrinsic Rewards: Tangible forms of recognition, including higher salaries and additional paid time off (PTO). These rewards demonstrate appreciation.
• Financial Rewards: Examples include bonuses, pay raises, and gift cards. These affect an employee’s financial well-being.
• Non-Financial Rewards: Focus on experiences and well-being, including flexible work arrangements, professional development opportunities, and wellness programs.
• Employee incentives: Specific rewards tied to achieving company goals or milestones. They can be monetary or non-monetary.
• Professional Development Opportunities: Supporting growth through training, workshops, or certifications.
• Token Gifts: Small, thoughtful items like branded merchandise or personalized thank-you notes.
• Promotions: Advancing employees to higher roles based on merit and contributions. 
• Profit-Sharing: Involving employees in the company’s success by sharing profits.
• Social Events: Team-building activities, office parties, or outings to celebrate achievements and build stronger relationships with colleagues.

When it comes to financial rewards, they are often structured based on different job levels within an organization:
 

• Employee Bonuses: Executives and senior management typically receive higher bonuses, often tied to the overall performance of the company. These can include annual bonuses, profit-sharing, and stock options.
• Managerial Bonuses: Middle management may receive bonuses based on departmental performance and individual achievements. These bonuses can be a mix of annual bonuses, performance bonuses, and retention bonuses.
• Employee Bonuses: Non-managerial employees might receive bonuses based on individual performance, team performance, or company-wide success. Common types include spot bonuses, milestone bonuses, and holiday bonuses.
• Sales Bonuses: Sales often have commission-based bonuses, which are directly tied to sales targets and performance. 

Employee Reward Tips

Some organizations don’t know what they want to reward, so the best method is to perform a needs assessment and analyze organizational goals to see what motivates the workforce, then tailor the rewards accordingly. What problems are you trying to solve? Retention? Attracting employees? Also, consider what your competitors are doing, as word travels fast and employees may leave your organization to join one with better rewards. An annual incentive plan should help motivate performance, achieve organizational goals, reward success and retain talent. 

How can your company ensure that rewards align with your values? First, clearly define and articulate your organization’s core values, as these are a compass for decision-making. Then link rewards to values such as: 
 

• Behavioral Metrics: Measure behaviors aligned with values (e.g., teamwork, integrity).
• Recognition Criteria: Recognize employees who exemplify company values.
• Transparency: Communicate how rewards are determined. Employees should understand the connection between their actions and rewards. This builds trust with your employees.
• Leadership Role Modeling: Leaders should embody values and reinforce them through their actions.
• Feedback Loops: Regularly assess whether rewards align with values and adjust as needed. Is it impacting performance or accomplishing your goals? 

How to Measure the Impact of a Reward System

The best way to discover if your reward system is effective is to measure its impact through a baseline assessment. Before implementing a rewards program, assess performance, workplace satisfaction, and work engagement as a baseline. You can’t do this in a silo, however, and it’s not just an HR project. You need to involve leadership and ensure that leadership models the core values to drive performance. This will also reinforce the core values that define the culture and mission. 

Employees should also be trained to understand and implement behaviors that lead to performance goals. And consider deploying regular surveys to gather insights into employee experiences with the reward system.

Key performance indicators (KPIs) track changes in knowledge, skills, attitudes, and overall progress during the rewards program. You can also track EBITDA, or earnings before interest, taxes, depreciation, and amortization. Measure consistently to understand the overall progress and changes in metrics, then present a reward once it’s achieved.

What to Avoid in Employee Reward Development

When creating your employee reward strategy, make sure there is equity and fairness. Reward behavior that advances group goals, not just individual achievements, and balance collective and individual rewards to avoid free riding. You should also connect rewards to your overarching vision to ensure employees understand the purpose and their role in achieving it.

Adapt your rewards to local contexts where necessary, considering cultural differences and regional needs. Then regularly assess the impact of the rewards and adjust as needed based on feedback and outcomes.

Here is what you should avoid when planning employee rewards:
 

• Favoritism or Bias: Ensure rewards are distributed fairly and without bias. Recognize diverse needs and preferences among employees.
• Neglecting Small Achievements: Don’t overlook minor accomplishments. Celebrate both big and small wins.
• Overreliance on Monetary Rewards: Balance monetary incentives with non-monetary alternatives. Consider personalized recognition and experiences.
• Lack of Communication: Regularly communicate about rewards, criteria, and processes. Transparency builds trust.

David Lewis is the National Managing Director of HR & Organizational Effectiveness Consulting Practice at Gallagher. He is a seasoned HR consultant who brings more than 38 years of experience in workplace and talent management, navigating business issues and HR strategic management.