How to Design a Reward System in the Company


69% of employees say they would work harder if they knew their efforts were appreciated.

Is that too much to ask for from the management?

According to a recent survey, it apparently is – 40% of the U.S. employees feel underappreciated.

Small businesses in particular heavily rely on loyal and devoted employees to fuel their growth, which is why establishing a reward system is essential for attracting and retaining top talent.

However, accomplishing it isn’t exactly a piece of cake, so these couple of tips will come in handy in the process.

Recognize Employee Achievements

And do it publicly!

The whole point of the Employee of the Month program is to praise a hard-working individual, validate their efforts, encourage them to set even higher goals, and to show other employees that their endeavors won’t go unnoticed too. Such a system takes advantage of positive reinforcement and boosts morale in your workplace.

An effective employee recognition system should reward both employee performance and behavior. The former can be done more easily as there’s a direct correlation between the goals set before your employees and the outcomes of their work. In other words, you can incentivize and reward salespeople who close more deals and bring profits.

When it comes to rewarding specific employee behaviors that you want to encourage, it’s a bit trickier. You need to take into consideration what kinds of behavior are beneficial for your business. For example, the very fact that someone works after hours, doesn’t mean that the employee in question is productive or that their seemingly obvious hard work will contribute to your company’s success.

But an employee who goes out of their way to help customers improve customer relationships and builds loyalty with them, and it’s only logical that their proactivity and initiative should be rewarded.

Money Talks

I don’t want more money.

Said no one ever!

There’s no doubt that financially-based rewards work, so don’t hesitate to thank your employees with a bonus. This form of incentive is popular in the sales industry where bonuses are used to stimulate salespeople to close more deals.

Another way of acknowledging your employees’ efforts and hard work is by including them in a profit-sharing program.

This means that you’d share a certain designated amount of annual profits with them. Although this seems like a fair deal, there are some serious downsides that you should be aware of.

One of them lies in the fact that employees get their share of profits even if they didn’t actually contribute to the company’s growth, which means that in time this money becomes perceived as an entitlement, while the motivation part gradually disappears from the equation.

Before you offer your employees a fatter paycheck in exchange for their engagement, it’s important to assess your cash flow and establish whether your plan is feasible.

Most startups and small businesses are strapped for money, not to mention that 82% of SMBs go under due to poor cash flow management, which is why you should be very careful if you decide to try out this type of reward system.  

The Perks of Being an Employee

Despite what we’ve discussed in the previous paragraph, it should be mentioned that 66% of employees say they prefer non-cash awards.

That, basically, means Jeffrey from sales would be significantly happier to get that parking spot he’s been eyeing for quite some time than a small raise.

Other options that don’t require you to put your hand deep in your pocket include:

  • Flextime and telecommuting. These two are among the most sought-after perks. They’re great for the company itself, as you can save some money on the office space and travel expenses, as well as for employees who can organize their time as it fits them. Working from home offers people a chance to achieve work-life balance and spend more time with their families. Besides that, even a two-year Stanford study has shown that such an arrangement results in a productivity boost.
  • Memberships and subscriptions. It’s great to relax in a nearby spa after a long and tiresome workweek or have a training session at a local gym to counteract the damaging effects of sitting all day at your computer. And particularly so if your employer pays for that. It’s not a hefty investment, and yet the message you communicate to your employees is “Go, relax, and have fun. You deserved it.”
  • A hand-written note. Corny as it might sound, this small and inexpensive token of appreciation will melt your employees’ cold corporate hearts and show that you hold them in high regard to such an extent that you actually took time to compose a heartfelt thank you note. Although a small gesture, this is, psychologically speaking, a very powerful act.
  • Asking your employees to tell you what they want. Surveys are great tools for finding out their wishes. Just bear in mind to offer a limited number of options as well as to make it clear what behaviors and achievements are rewarded.  

How to Make the System Work?

All these rewards are cool, but if you want to create an effective, rewarding system, you should consider the following factors:

  • All your employees must be informed about the incentive as well as how they can earn it. That’s the only way for the reward to motivate them.
  • The award is supposed to be something valuable to the employees.
  • The effort your employees put into earning the award should be outweighed by its value. If it’s the other way round, the reward can even become a demotivator.
  • The award should be perceived as a direct result of your employees’ efforts and contributions.
  • The award is supposed to be offered in a timely manner so that the association between the activity and the result can be created in the employees’ minds.
  • The award is supposed to be offered consistently, as otherwise its power will be weakened, and it won’t be perceived as a motivator.

Designing a reward system in your company can be a challenging task as you need to find the right balance which will encourage your employees to become high-performers.


Michael Deane is one of the editors of Qeedle, a small business magazine. When not blogging (or working), he can usually be spotted on the track, doing his laps, or with his nose deep in the latest John Grisham.


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