Reward and Recognition: The complete guide

Improved retention and loyalty

Effective reward and recognition is key to retaining staff and improving loyalty.

Employees want to know:

• Their hard work is appreciated
• They are a valued member of the company
• Their efforts are making a genuine difference to the business.

When an employee is rewarded or recognised for their hard work it strengthens their relationship with the business and helps them feel like an important part of the team.

According to Deloitte, companies that have implemented reward and recognition programmes have a 31% lower voluntary turnover.

Strengthens relationships within the business

Effective reward and recognition not only improves the employees’ relationship with the business but also with their peers.

When managers show their appreciation for their team’s hard work the team appreciate it too. If a manger decides to reward their team by allowing them time to work on their own projects or take a longer lunch break, it strengthens those relationships.

Equally, reward and recognition isn’t just restricted to managers and an effective reward and recognition programme accounts for peer-to-peer recognition too (which we explain further in this guide!).

Recognition can be both personal and professional, such as with Christmas rewards, which again we explain further below.

Encourages positive reinforcement

Recognising and rewarding achievements or good work is a great way to encourage positive reinforcement in the workplace.

For example, by rewarding or recognising an individual or a team for a particular achievement you’re increasing the chance of it happening again.

Positive reinforcement is a theory that is widely popular even outside of the workplace.

Employee incentive schemes are a great way to encourage positive reinforcement with tangible benefits for good performance.

A more motivated team

Effective reward and recognition ties in strongly with employee motivation.

Praise and reward is an essential need for employees in the workplace and contributes to creating an environment and a role that ultimately motivates employees.

It’s not just recognition itself that’s important but fair recognition. If employees don’t feel like they’ve been suitably rewarded, or that someone else has been unfairly rewarded then they’re much less likely to be motivated.

Having effective reward and recognition in place is key to a motivated workforce.

For more on how reward and recognition affects motivation, read our in-depth look at The Theory Behind Employee Motivation and Retention.

Increased productivity

Happier, more motivated staff are more likely to be invested in your organisation and driven to produce great work.

Happiness in the workplace has been shown to boost productivity while improved job design supported by reward and recognition will also contribute.

Happy employees and a happy culture

The importance of a strong company culture cannot be underestimated. A culture that breeds happiness within the workplace will boost productivity and make your business more attractive to talented new recruits.

Furthermore, it will help improve employee retention!

Improved overall wellbeing and reduced absenteeism

The science behind reward shows that effective reward can actually have a positive impact not only on someone’s mental health but physical health too.

According to research, appreciation and gratitude can positively affect certain parts of the brain including the hypothalamus.

The hypothalamus regulates things like our appetite, sleep and dopamine.

Effective reward and recognition has been shown to reduce stress, improve sleep and even increase metabolism.

Reward vs. Recognition: What’s the difference?

Reward is usually something tangible, like a gift or a monetary bonus handed out. It’s something tangible in return for an achievement.

Recognition is the act of recognising an achievement, sometimes with a “well done” or “congratulations”.

Reward and recognition can be handed out separately or simultaneously. Both can be used for positive reinforcement.

Some instances simply warrant recognition, where a simply thank you or acknowledgment of an achievement can go a long way.

This can help give an employee a boost or even help form more positive relationships within the business.

Rewards can often be used to set goals or something to aim for. If the employee achieves X they’ll get Y reward, and so they have something to aim for.

There are a bunch of intricacies involved with both rewards and recognition and how they can be used effectively to motivate and engage employees.

Don’t think of it as Reward vs. Recognition, as the two aren’t mutually exclusive.

Used in combination, reward and recognition can be incredibly powerful.

How much reward and recognition budget should you allocate?

Many set their new reward and recognition budgets in April, however there’s no right or wrong time to set them. How companies set their overall budgets can vary a lot.

It’s also important to consider how you spend and allocate any remaining budget.

And remember, you don’t necessarily need a reward and recognition budget! We’ll explain this a bit more below.

How much companies typically allocate to their reward and recognition budgets can depend on a number of factors.

Some will spend as much as 10% of their payroll while some spend very little or nothing at all.

Research shows that organisations in the U.S. in total spend around $90 billion a year on reward and recognition. That may sound like a lot, but reward and recognition programmes are one of the most cost-effective ways of boosting employee satisfaction, productivity and retention.

The typical average for reward and recognition budgets are around 1-2% of payroll.

Should you allocate more than 1-2% of payroll?

This depends on a number of things. Your company, its values and objectives need to be considered.

For example, if you’re a company that’s looking to scale rapidly and you’re on a recruitment drive, it may be worth investing more in reward and recognition. Not only do you want to boost retention (maintaining the strong core of your company while you look to add to your team), you’ll want to show potential talented new recruits that you’re a company that shows appreciation and recognises achievements.

Examples of rewarding employees can be used on career pages on your company website or through social media profiles dedicated to careers with your company.

Before you set your reward and recognition budget, consider just how far it can go in terms of how it can benefit your business.

How should you allocate your reward and recognition budget?

Different companies take varying approaches when it comes to allocating their reward and recognition budget.

Some companies go for a relatively simple split. For example, say your reward and recognition budget is £20,000 for the year, you might allocate £12,000 to reward and £8,000 on communications. How this budget is then allocated on a micro level is totally up to managers.

You could go for a simple ‘per employee’ split where you communicate to managers their budgets for rewarding employees as an amount per employee for the year.

Alternatively, you could allocate budget to each aspect of your reward and recognition.

For example, you could split your budget between your peer-to-peer eCards, employee awards and employee rewards. This could be split down further for employee awards for example where individual budgets could be allocated to monthly, quarterly or yearly awards.

A few things to consider when allocating your reward and recognition budget

Allocate your budgets so they’re as fair as possible for all employees.

Allocating a ‘per employee’ kind of budget where you set a maximum spend per employee per year might help avoid situations where there is a large gap between the employee who has been rewarded most at the company and the employee who has been rewarded the least.

Fairness is one of the most critical factors to the success of your reward and recognition programme and this should definitely be considered when setting your budgets.

Your budget should also look to allow managers and employees to make the most of each aspect of your reward and recognition offering.

For example, you’ll need to recognise where you need to be a little more generous in terms of setting budgets for certain aspects. An award for Employee of the Year for example will require a little more budget than a simple ‘Thank You’ reward.

However, if managers feel they get the best results using one aspect of your reward and recognition then you could allocate more budget to allow them to make the most of it.

For example, managers might feel the most benefits when they allocate gift cards or bonuses to employees through payroll for hitting key targets or for generally high performance. Constant feedback is key. Always be prepared to reallocate budgets to areas that work well!

Also consider that not all reward and recognition requires a budget and often the best rewards are non-financial!

How to reward employees on a budget

With all that said, having a reward and recognition budget isn’t mandatory and a very small budget or no budget at all can still be highly effective.

We’ll go into non-financial and non-monetary rewards further down in this guide, but some of the best and most effective rewards actually require little to no budget at all.

With a smaller reward and recognition budget, you’ll need to think more about what permissions you can allow managers and also peer-to-peer recognition.

For example, peer-to-peer eCards require no cost and are a simple yet effective way for employees to recognise their peers. Again, we’ll delve more into eCards further on in this guide!

For managers, allowing them to reward employees with a longer lunch break for example won’t require any budget to be allocated.

How to develop a reward and recognition strategy

The best way to implement reward and recognition is with a strategic approach. Doing so has a number of key benefits and will help ensure you spend your time, energy and resources the most effectively when it comes to reward and recognition.

What is a strategy and why is it needed?

Your reward and recognition strategy can be essentially whatever you want it to be, taking into account your company size, resources, time and budget.

For example, larger firms might require a more highly detailed strategy while smaller to medium sized businesses might benefit more from a more simple, agile and streamlined strategy that outlines the very key points in a precise manner, but still giving a good overall picture.

In some cases, a detailed strategy is needed to convince or persuade at a high level the importance of reward and recognition while also giving a greater picture of what you and your department propose to implement.

A well thought out strategy shows you’re serious and may be a vital tool in convincing the top level to allocate more budget and resources towards reward and other HR practices.

A reward and recognition strategy also helps show everyone within the business that you’re serious about employee wellbeing and satisfaction and helps strengthen the company’s core values both internally and externally.

While this section will cover reward and recognition strategy in detail, it’s important to find the right balance when it comes to drawing up your reward and recognition strategy.

Spending too much time planning and less time implementing is never good when it comes to any strategy, so finding the right balance and utilising your time and resource effectively is key.

Essentially, before drawing up your strategy, decide how much detail is needed and what the purpose of the strategy will be and who is likely to benefit from it.

Aligning your reward and recognition strategy with the overall business strategy

Ideally you want your reward and recognition strategy to align with the overall business strategy and goals, particularly if the strategy is being used to persuade those at the top level.

Your reward and recognition strategy should be viewed as an investment, not an expense. When aligned with the company goals, your strategy will be viewed as an investment in the overall business strategy.

Where costs need to be cut, expenditure on internal rewards for staff may be the first area for consideration, so it is important to stress the importance of reward and recognition in helping the company achieve its overall aims.

What should your reward and recognition strategy include?

There are a number of factors that will dictate what goes into your reward and recognition strategy such as resources and business structure, for example. Here are some points to consider when drawing up your reward and recognition strategy.

1. Business case

What is the business case for implementing a reward and recognition strategy? How will doing so ultimately benefit the business? Effective reward has a huge number of benefits so it’s best to focus on the ones that align with the overall HR and business objectives.

For example, how will your reward and recognition strategy help the company cut costs? Where this is a focus for a company, it could be an opportunity to emphasise the financial benefits of reduced staff turnover as a result of implementing your reward and recognition strategy.

2. Timelines and Timescales

Some reward and recognition strategies span over a year while some can be as long as 3 years or even longer.

The longer the plan, the more you’ll need to emphasise the adaptability of your strategy and how you plan to deal with unexpected changes.

You may also include an implementation plan which shows timescales for when each part of the strategy will be implemented. For example, are you planning to implement a peer-to-peer messaging service within a certain timeframe? Or are you looking to introduce a reward bonus for staff in a particular department during a time in which it would be most effective?

3. Key Performance Indicators

Begin by establishing a performance baseline. What are the key figures and statistics that will determine the effectiveness of your reward and recognition strategy? How is your business currently performing in term of these key performance indicators and what are your targets?

4. Budget and expenditure

What is your budget for reward and how do you plan to allocate it? This can be as detailed as you like but any presentation of how the business’ money is being invested could be crucial in securing investment.

5. Frequency of reward

The frequency of how you reward staff is an important part of the success of your reward and recognition strategy.

There are a number of factors that are important to the success of reward such as fairness, relevance and timeliness however the consistency of reward is also an important factor.

Show how you plan to keep reward consistent throughout the implementation of your reward and recognition strategy.

6. Types of reward

Give an outline of the types of reward that are likely to be included in your reward and recognition strategy.

With this, however, it is important to consider that particularly for longer strategies, these rewards can change.

How reward will align with values of the business

Different companies have different values and core competencies.

For example, your company may take an overall agile approach in how it operates or maybe a more disruptive approach in the way it markets itself. From a HR perspective, maybe you have a particular focus when it comes to recruitment such as operating leading graduate schemes.

How will your reward and recognition strategy align with this? Will your strategy have an agile approach too? How will you look to appeal to your graduate hires with your strategy?

Be creative!

Your reward and recognition strategy isn’t just confined to these principles and as mentioned it can be essentially whatever you want it to be.

Anything that will be useful in convincing of the effectiveness of the strategy and useful in documenting the strategy will be beneficial to include.

Consider the purpose of your strategy, what you want to achieve with it, consider your resources and develop a strategy that suits you!

To get the most out of your reward and recognition programme, take a look at our article on The 5 Key Elements of a Successful Reward and Recognition Programme.

Reward

The concept of reward has been around for longer than any of us can remember, yet it can still prove tricky to get right.

The rewards themselves are of course a critical component and are the focus of this section.

It can be a challenge offering meaningful rewards that employees will love while balancing the budget and making your rewards cost effective.

The benefits of meaningful, impactful and appreciated rewards include improved productivity, improved employee satisfaction and reduced turnover to name a few.

You might need to be creative and think outside the box with the rewards you hand out, so it can help to brainstorm and come up with a few ideas that will really make employees stand up and take notice while setting you apart from competing employers.

Monetary vs. Non-Monetary rewards

It’s good to have a reward budget, but is it always needed? You don’t always need a huge budget for employee rewards or even a budget at all. That said, both monetary and non-monetary rewards have their merits.

Non-financial reward can often be the best option

You can still have an unmatchable reward and recognition strategy in place with little or even no budget.

Non-financial rewards tend to be much more cost-effective as the focus of the reward is more on the reward itself than the monetary value attached to it.

They can also make an immediate impact where financial rewards such as a monetary bonus may only be applied when the employee is next paid for example, depending on how the reward is handed out.

The most well thought out and meaningful rewards are often the most effective. Think about the most meaningful gifts you’ve ever received; chances are the best ones we’re the ones that cost the least!

What monetary rewards are there?

Again, this requires some thinking outside the box if you want to differentiate your rewards from competing employers as there are a number of ways you can hand out monetary rewards.

The classic example is a monetary bonus often handed out to the employee on pay day.

A pay rise can be classed as a bonus particularly if it’s tied to a specific aspect of an employee’s performance such as hitting sales targets for example.

Commission on sales can also be considered a monetary reward, or profit sharing where employees receive part of the profit based on their position and time with the company.

Monetary bonuses can help give employees more of a sense of ownership of success. For example, if the company has had a good year or performed well in a particular area, if staff who have been responsible for that performance receive a monetary bonus as a result it could help them feel associated with that success even more.

What non-monetary rewards are there?

With non-monetary rewards you can afford to be really creative and create rewards that are highly personalised and incredibly effective.

We’ve written a whole blog dedicated to our favourite 15 non-monetary rewards, with some rewards in there that are easy to implement and that your staff will love!

However, don’t just stick to these. As mentioned, in order to set your rewards apart from competing employers you’ll need to think outside the box. This could involve weaving in your product or service somehow to offer rewards that other employers can’t match.

Best practices when rewarding employees

• Individualised rewards: each individual will respond to rewards differently; the key is to find rewards that mean the most to the employee you’re rewarding!
• Apply rewards immediately: the sooner you reward, the more that reward will be associated with the thing that the reward is being handed out for, thus making it more effective, so don’t wait!
• Variety is key: don’t let your rewards become predictable! Spice it up and think outside the box and try to avoid using the same reward twice in a short space of time
• Be specific about what you’re rewarding for: really highlight the particular behaviour you’re rewarding for. It’s not always the outcome that’s being rewarded but a specific behaviour that resulted in the outcome
• Reward consistently: this is particularly important for example if an employee is learning a new skill. It may take a while, but consistent reward along the way will be a consistent source of motivation and help the employee achieve their goals!

Employee Awards

Well designed employee awards are a great way of boosting employee morale and improving productivity. Typically handed out for hitting milestones such as for long service, or for hitting personal targets, effective employee awards recognise the hard work and commitment of employees.

Employee awards are a key pillar of your overall reward and recognition strategy and effective employee awards have a number of benefits.

Employee awards are key for improved performance

When setting out expectations for employees, it’s important to set goals and targets.

Employee awards related specifically to these targets or to overall performance are a great way of recognising the hard work of your staff.

‘Employee of the Month’ is a classic example but awards for performance could be handed out for hitting specific goals such as sales targets for example.

Positive reinforcement and appreciation

Awards are not only a great way to show appreciation, but they’re confirmation for an employee that their hard work is contributing to the goals of themselves, their team and the business.

These types of awards are particularly important for employees who may have recently joined, who are at the beginning of their careers or who may be suffering from ‘imposter syndrome’ where they may need some positive reassurance that they’re performing well.

Team building and morale

While still effective, some awards like ‘Employee of the Month’ may seem a bit bland. The beauty of the employee award is that they can be whatever you want them to be.

They can be fun and creative like the awards you might hand out at your company Christmas party.

They can even be designed to reflect your company values and culture.

And they can be handed out by anyone! Which makes them ideal for bringing teams together and building morale.

For more creative employee awards ideas, take a look at our staff awards ideas blog.

The importance of a reward and recognition platform

Effective reward and recognition requires the aid of technology, which is where reward and recognition software comes in. According to a study by Globoforce, just 14% of companies provide managers with the tools for reward and recognition.

The steady increase in the adoption of remote working has been accelerated rapidly in recent times and thus the importance of technology has increased too. It’s now more important than ever for HR teams to have the right tools and software to help motivate, reward and engage employees.

EBOOK: How to utilise reward and recognition technology effectively

Life made easier for HR

The administration involved for HR can often be a nightmare which is one key area that HR software helps to address.

Having everything all under one roof, digitally, for HR makes implementing a reward and recognition strategy much easier and much more efficient.

All your statistics and data are in one place, while things such as your employee benefits can all be tied in to the same platform.

Using HR software also brings with it the benefit of consistent updates and features aligned with employee engagement trends and technology.

HR software is great for employees too

Staff also benefit from having everything in one place too, with one place to go to for all things reward and benefits.

This is also where peer-to-peer recognition comes in. A reward and recognition platform allows staff to not only recognise their peers digitally, but they can see all the rewards they’ve gained and awards they’ve been credited with all in one place.

So, when an employee receives a gift voucher for example for their hard work, they can immediately go online and make full use of it straight away.

Furthermore, in a more remote working world, a reward and recognition platform is a great way for staff to keep in touch with and recognise their colleagues, helping them feel less isolated.

Managers can reward in one click

With a reward and recognition platform, managers can easily hand out monetary and non-monetary rewards and recognise staff in the click of a button.

They also benefit in the same way as HR with all the key information around reward under one roof. Managers get a better overview of how they’ve rewarded staff which can be useful when it comes to performance reviews for example.

Integration for easier management

As mentioned, with the right HR software you could have all your reward and recognition tools along with everything else all under one roof.

For example, you could include your employee benefits alongside reward and recognition. If you offer discounted gift vouchers to staff for example, these could integrate with reward and recognition and be used by managers as rewards.

With the right platform you could also host all your company documentation and use it to reduce admin and save time.