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How Should We Be Rewarding The Best Employees?

10th June 2015 | John G Fisher

If an employee performs above and beyond their job role, organizations will often recognise this performance publicly and sometimes attach a small reward to say thank you. The benefit of doing so is to increase engagement amongst employees by making them feel valued members of the team and, in turn, can lead to improved bottom-line performance, if enough people feel valued.

If a company decides that they would like to implement a recognition programme to drive engagement, it must then choose the type of rewards that would be best to recognise their employees’ achievements. These can be cash or non-cash rewards.

If you were to question employees on how they would prefer to be rewarded, it’s likely that they would favour monetary rewards. Despite this, research suggests that workers actually perform better with more aspirational, non-cash rewards due to the appreciation they feel from gaining these experiences. The key case history to support this view is the Mazda Motors of America study which found that sales employees were some 5 times more effective when involved in non-cash incentive schemes than with cash programmes.

Therefore, in the aim to recognise your employees’ hard work, recognition with non-cash rewards is the most effective reward. The type of non-cash rewards businesses give can vary depending on who the rewards aimed at and what it is attempting to promote. For an automotive company, it could be a day on a race track, while an entertainment organization could provide hands-on, consumer experience with its own products.

Creating a suitable spending budget is both an art and a science. Companies must ensure that they have enough resource in order to appeal to the entire workforce and offer relevant rewards. But it must also make sure that they aren’t paying for performance that is already contracted. It is only behaviour that exceeds expectations or goals that should be recognised or rewarded.

In order to estimate the level of likely ROI from running these programmes, organizations can investigate whether the programme will be self-funding by establishing breakeven measures of success.

For sales incentives and reward programmes, the programme budget will depend on the expected increase in sales. Apart from being good business practice, these calculations can also help to reassure any doubters who simply see it as a ‘nice-to-have’ scheme whenever it can be afforded. Sales incentives should be self-funding.

Typically a sales incentive should be rewarding above average achievers with around 35 of their take home earnings during the campaign period. So if they normally earn £5,000 they should expect to be rewarded with say £150.

Alternatively, companies can calculate ROI based on the estimated loss from disengaged employees to justify the specific business case for undertaking employee engagement. If employee behaviour is recognised and rewarded, it is much more likely to encourage engagement in the workplace.

The Center for Talent Solutions (CTS) found that ‘fully engaged’ employees produce 20-25% better performance in comparison to those who are only neutrally engaged. Therefore, revenue gains and cost savings can be made by directly engaging employees at work and budgets can be based on these sums. In most employee schemes the non-cash reward element is normally in the region of 1% of take home pay, all things considered.

There are always exceptions and anomalies… and don’t forget that setting up the programme and its communication have costs attached too so the rewards themselves are not the only part of the overall cost, by any means.

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HR, Organizational Development & Coaching

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