The Importance of Effective Employee Rewards & Recognition

Michael Dean

There should be no doubt about the importance of recognition. Employee recognition is when an employee’s hard work and effort is recognised and appreciated. This can be through feedback, increased responsibility, promotions and through employee rewards.

Research on the importance of rewards and recognition

Research from Bersin by Deloitte shows that companies with a ‘recognition-rich culture’ have 31% lower voluntary turnover rates. Yet getting employee recognition right, requires some very serious considerations.

Studies dating back to Herzberg in the sixties – and the data we analyse at Peakon today – show that exceptional work and sustained engagement comes from a good fit between jobs and intrinsic motivations. Introducing extrinsic factors – such as financial rewards – can be disruptive in these cases. Someone doing something great ‘just because they want to’ can find it off-putting when their actions are brought into a reward system external to their own motivation.

Another pitfall of rewards is creating a paternalistic culture. As Robert Leverling explains in his management classic A Great Place To Work, employees will quickly see paternalistic reward and gift giving as a control method and an affront to their dignity.

What’s needed then, is to reward achievements in a way that lets employees know their efforts are recognised, without spoiling the dynamics that lead to this effort, or creating an unhealthy relationship that belittles people. Thankfully, this is perhaps even easier to do without spending vast sums of money, than it is when rolling out bonus schemes.

Employee reward ideas need to be unexpected, personal and meaningful

If you’re going to use rewards to motivate your team, then you need to do it wisely. Rewards shouldn’t just be used as a tool to manipulate behaviour, instead they should be used as a form of recognition, and to signify to employees that you genuinely value their contributions.

So, what makes a reward effective?

Firstly, financial rewards should be off the table (this might be surprising to some). In Drive, Pink highlights the large body of evidence that suggests that monetary rewards don’t actually increase motivation levels at all.

According to Herzberg’s Two-Factor Theory, financial factors only affect motivation when they are lacking. For example, if your team’s salaries are below a level where they can comfortably support themselves, they are obviously going to be demotivated. However, if your team are already fairly compensated for their work, then additional monetary bonuses will have little to no impact on overall motivation.

Effective rewards are all about making people feel valued on a regular basis and celebrating successes in an authentic way.

You can do this by making sure that they are unexpected, personal and meaningful.

Unexpected

One of the biggest problems with employee reward ideas happens when people start to perceive them as controlling. Using an “if-then” approach to rewards will interfere with an employee’s sense of autonomy and eventually lead to a decrease in motivation.

Researchers at Cornell University studied 320 small businesses, half of which granted workers autonomy, the other half relied on top-down direction. The businesses that offered autonomy grew at four times the rate of the control-oriented firms and had one-third the employee turnover.

Personal

Knowing the names of people in your team is a good start, but you need more than that to make rewards work. Instead of giving the die-hard football fan in your team a spa day, why not buy them a ticket for an upcoming game instead?

When a reward is personal it’s also more memorable – it makes people feel genuinely valued. A study by the American Psychological Association found that those who report feeling more valued are much more likely to be motivated to do their best and recommend their workplace to others.

Meaningful

Making rewards personal requires having a basic understanding of the people on your team, but making them meaningful requires a little more thought. Maybe you know that one of your team members has a new baby and recently had to pay for some repairs to their home. You could demonstrate that you value their recent efforts by paying for daycare and giving them the freedom to work remotely for a week so they can oversee the work.

A gesture like this requires personal knowledge about your employee and an understanding of what would make a difference to them. When it isn’t tied to performance or the completion of a deadline, it has the added bonus of being unexpected too.

Who, when, and what to reward

If great work has been done in the last week or so, then recognition should come from the team’s leader then and there. Praise and rewards should come with a clear explanation of why that work advances the team’s progress in an exceptional way. It’s more than likely the employee knows this already, but it helps to show that this recognition is based on a level of objectivity – helping meet predefined goals.

An entirely subjective award can lead to an air of paternalism, as mentioned above. If as a manager you consistently plan poorly, dump last-minute work on people’s desks, and then reward them for all their late nights to get it done, it will be very clear that the reward is an attempt to pacify the employee who’s had their evenings ruined. This sets the tone that work is being done for the manager, rather than the company as a whole – which is pretty much the fastest way to make an employee want to quit!

Peer-to-peer recognition is often even more effective at motivating employees, because those we work with on a day-to-day basis know what we consider to be a real achievement – something we’re proud of, that’s taken a lot of effort to accomplish.

Final words

Rewarding employees effectively can encourage motivation and exceptional work.
Rewards should be presented to recognise great work and to advance progress. Monetary rewards have been seen to be less effective however, rewards that are unexpected, meaningful and personal are the most effective. (And if you’re stuck we’ve ideas for great employee rewards).