Key Learning Outcomes

  • Understand how a reward and recognition strategy can have an impact on your business’s productivity and profitability.
  • Distinguish between “rewards” and “recognition” programs.
  • Ensure that a reward program is based on your business’s goals, the target levels are appropriate and the program is clearly communicated to your team.
  • Learn about the different types of reward programs you could consider for your business.

Article

It is important to that every business has a reward and recognition strategy. It has been shown that employee engagement has a direct impact on the productivity and profitability of the business, so the reward and recognition of your team are essential.

It is important to remember that reward and recognition are not actually the same things, and they do not always go hand in hand. Usually rewards are of a financial nature and are designed to reward an employee for their performance. Recognition programs are designed to provide a psychological benefit to the employee. Both are used to enhance motivation and are effective in building levels of engagement if used in the right way.

Reward payments are kept separate to salaries and are based on achievement of goals or outstanding performance. If a bonus is given to every employee every year, then it simply becomes part of the salary package and provides little incentive for employees to go above and beyond.

It is important to note here that a reward and recognition program, no matter how attractive, will not compensate for a salary that is below the industry standard. When employees are paid below the industry standard, they feel less valued and are likely to explore other opportunities. It is essential that base salary packages are competitive in the market prior to implementing any reward program.[wlm_ismember]

Rewards

When designing a reward program there are a few key things to keep in mind.

Firstly, it is important that any reward program is designed with the company’s goals in mind. Employees should be rewarded for assisting in the achievement of these goals. It is important to ensure that the activities or behaviours you are rewarding are in line with your goals and not working against them. For example, a manufacturing business may have a goal of 100% customer satisfaction, yet may be rewarding the employees for the speed of getting the product to market. As a result, the employee is successful in getting the product produced quickly, but the quality suffers, leading to product returns and less satisfied end users. In this instance the reward was counter-productive to the end goal.

Next it is important to ensure that the rewards are set at an appropriate level. Often companies set the goal as a stretch target that seems so far out of reach that it is actually demotivating for the employee. Likewise, if the target is set too low then the reward just simply becomes part of the salary package. The target should be achievable, but beyond what is expected on a regular basis. Often we suggest two targets to be set: one where the reward kicks in, and a second, higher target that gives a “super bonus” for an exceptional result.

Finally, it is important that the reward program is clearly communicated to your team. The rules should be clear for all parties, as there is nothing worse than an employee and employer having to argue over whether the target was met or not at the end of the bonus period. Ideally, if the target period expands a longer period of six or twelve months, regular updates should be given so that the employee can see if they are on or off track, and the reward program can be used to help enhance their performance. It should be clear to the employee that it is a win-win situation if they achieve the target and receive the reward, and that you are working with them to achieve the best possible result.

Types of reward programs

When designing your rewards program, you need to consider whether to reward individual employees, business units or the entire company. There is no right or wrong system, and there is also no reason why a combination of programs cannot be used. For example, we often see in industries such as real estate, where front-line employees are rewarded through commission, so there is merit in also having a program that rewards the administration team. It is important to keep in mind that with group reward programs, sometimes employees that do not put in an equal effort can still receive the same benefit as the rest of the group.

Pay for performance

This type of program will usually involve a lower base salary with an incentive structure that rewards performance of an individual or business unit. You will often see this type of reward program used for salespeople who are rewarded for their results through a commission structure.

Bonuses

These can be used to reward individual or group performances. They can be effective motivators and are usually used as short-term rewards such quarterly, half-yearly or yearly. It is important to ensure that the bonus goal is set at the right level. As mentioned earlier, if it is set too low, the bonus simply becomes part of the salary, and if set too high it is no longer motivational. It is important to work out what level of performance is considered the base line, that is, the performance level that the employee is being paid for with their salary package. Once this is established, goal targets can be set appropriately.

Profit-sharing

This can be an effective way to reward either business units or an entire team. In essence, the employees receive a share of the overall profits. This can be done equally or depending on the position or even seniority. This type of reward program can encourage teamwork and can help increase employee engagement levels if managed well. With this type of reward program, there needs to be a level of transparency from the company in regard to the figures, and it is important that the employees feel involved in decisions that will affect the bottom line.

Equity

Offering stock options or equity in the business can provide effective long-term motivation, as usually employees will have to lock into a certain employment period before the shares can be sold or liquidated. This type of reward program can also be an effective way for a small business to raise revenue for expansion or for other larger projects.

Recognition

Recognition programs are extremely important in every business, no matter how big or small, as most employees will tell you that money is not the major motivator in wanting to perform at their best. There are a couple of key things to take into consideration when you are designing a recognition program to ensure that it is successful in increasing the motivation and engagement of your team.

Be consistent

You must be consistent. Too often we see businesses start with a recognition program only for it to fall by the wayside over time. Have you even been in a business where they have photos of the employee of the month placed near the front door, but they are months, or worse, years out of date? This not only leaves a bad impression on the customer but also shows that the company is not serious about recognising their employees. There is nothing wrong with starting small and then building your program over time.

Be genuine

You have to be genuine. There is nothing worse than seeing a business owner trying to deliver a message of recognition if they do not believe in it or the program. Before implementing a recognition program, you have to ensure that all of your senior team are on board with the program.

Be timely

It has to be timely. If you are going to recognise employees for a job well done, then do it as close to the time as possible.

Recognition programs can be regular events such as employee awards given monthly, quarterly or annually. These types of awards can be more effective if the award winner is determined by the team rather than the boss. Alternatively, there are programs where achieving a certain level of performance means entry into a recognition club where membership might include access to special events or other privileges. Other popular programs recognise employees for their years of service. While this can promote a level of loyalty, recent research has shown that this type of program is less likely to impact on company performance.

As with rewards, it is important that your program is designed with your company’s goals in mind. If you have a goal to provide a superior level of customer service, then you want to design your program to recognise when an employee is delivering on this goal.

Recognition does not have to cost a lot; simply saying thank you to an employee can mean more to the person than any product or gift. If you foster an environment in your company where good news is shared, you will end up with a culture of strong morals and a team striving to produce their best. Put simply, people work harder when they know that their efforts are appreciated.[/wlm_ismember]

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