How to Create Employee Reward Systems (Including Types)

By Indeed Editorial Team

Published 27 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Motivated and engaged employees are typically more productive and tend to stay in their jobs for a longer period of time. Recognising and rewarding employees for their contributions can make them feel valued. Learning how to create a reward system is important to increase an organisation's engagement and employee retention rate. In this article, we discuss what reward systems are, how to create one and the different types of rewards that organisations can offer their employees.

What are reward systems?

Reward systems are programmes set up by organisations to reward good performance and encourage employees. They're usually separated from salary increments and offer monetary benefits. Creating a reward system can also attract talent to apply for jobs in the organisation. It's important to differentiate the pay system and performance evaluations from reward systems.

Salaries are typically determined based on work experience, performance or to account for inflation. Separating the systems ensures that employees recognise organisations award rewards to those who display excellence in their work. They motivate employees to take initiative and work harder to deserve additional rewards on top of salary increments and good performance appraisals.

Related: How to Work Hard: 10 Tips and Strategies for Success

How to create a reward system in 7 steps

You can create and implement an employee reward system by following these steps:

1. Identify organisation goals

Identifying the organisation's goals can help to determine the types of behaviours to reward. The purpose of a reward system is to improve an organisation's productivity and employee retention rate. Deciding on goals that enhance an organisation's efficiency or increase overall profits enables organisations to improve their overall performance. For example, if the goal is to increase productivity, the reward system's design can focus on rewarding those who improve work processes.

2. Conduct surveys

Gathering feedback and opinions from employees about the reward system is important to understand what motivates them. Create a structured survey where employees can choose between different reward options. This indicates what are the more popular options. It's also helpful to decide on a suitable budget for the system. Keep the survey anonymous so that they're comfortable sharing their views. Online surveys are an effective way to organise survey answers and distributing it across the organisation.

3. Define performance metrics

Crafting a checklist and deciding on performance metrics can help organisations to decide who to reward. Rewards typically have a monetary value and incur costs for organisations. It's important that organisations decide on the type of employee performance or behaviours that meet their goals. This typically includes measuring non-monetary returns, such as improved work processes and better customer feedback.

4. Design a reasonable system

Creating a successful reward system involves detailed planning. Ensure that the key milestones and achievements are realistic and attainable. Pick rewards that appeal to employees most, and consider the long-term goals of the system. It's helpful to get approval on the budget for the system first before deciding how long to maintain the system. It's also important to plan how often to give out rewards and find ways to sustain the system in the long-run.

Related: What Are Employee Benefits and 17 Types of Employee Benefits

5. Determine suitable rewards

Organisations can consider creating rewards at an individual and group level. This can foster team building across departments and promote work initiatives. It's also crucial to create rewards in different tiers to incentivise employees. For example, employees who consistently improve their work quality may not receive similar merit to those who exceed their monthly sales quota.

6. Inform the team

Promote the reward system to the organisation and communicate the milestones and rewards to the team. This ensures that they understand what's expected and drives them to attain the goals. Consider organising a company-wide luncheon to share the system, and follow up with regular emails and meetings to promote it. Include a document that outlines how the system works, what are the specific rewards and how to attain them. This gives the team opportunities to ask questions and ensures that they're clear about how to qualify for the rewards.

7. Ask for feedback

After implementing the system for a few months, consider conducting another survey to collect feedback about it. This helps to gauge employee satisfaction and enables you to make adjustments to the system to improve it. Employees may offer feedback on the system's feasibility and type of rewards offered. Regularly asking for feedback ensures that the system continues to motivate employees.

Types of employee rewards

Here are the types of rewards you can include in your reward system:

Variable pay

Variable pay programmes account for an organisation's or individual's overall performance to determine part of an employee's salary. It's typically calculated based on business revenue or an individual's performance in closing deals and making sales. An employee's basic salary may be lower than other organisations, but this structure allows them to potentially earn more if they hit organisational goals. This motivates employees to work harder and focus on attaining business goals. Rewards can also include cash bonuses or stock options.

Bonuses

Organisations typically award bonuses at the end of every financial year if they achieve their financial goals. It's usually a company-wide incentive and recognises the hard work of every individual. Organisations can consider switching to an individual-level bonus to further motivate employees to meet their sales quotas. It's important that organisations calculate the amount of bonus awarded based on performance metrics. This can include company revenue and the number of new client deals closed. This ensures that employees don't feel entitled to receiving bonuses and focus on accomplishing their goals.

Related: What Is a Performance Bonus? Benefits, Types and Components

Stock options

Stock option programmes give employees the opportunity to purchase the company's stocks at a lower price. It's usually awarded to long-term employees for their loyalty and hard work. Companies typically offer a fixed number of shares at a certain price for a set time period. The company's key stakeholders and shareholders decide on the figures and approve the programme. It's important that companies offer this to long-standing employees who've worked for a set number of years. It's a long-term benefit to increase employee retention rates. The company also benefits from taking tax deductions when they issue shares.

Employee of the month recognition

Recognising a team member who exceeded expectations in their performance each month is a popular reward option in many industries. The employee of the month serves as a role model to the rest of the team and motivates them to work hard to gain the same recognition. It also showcases that the company notices and values an employee's work.

Rewards can range from an extra day of leave or meal and shopping vouchers. You can also recognise the employee in front of the company. Announce every month's employee to their internal team and showcase it on the company's website or monthly newsletter.

Employee appreciation outings

Consider organisation outings for teams whose overall performance exceeded expectations. This fosters healthy competition between teams and team building. You can allocate a set budget for the team. They can choose to spend it on a meal or activity. This also incentivise employees to meet their monthly goals and progress as a team. You can offer a half day off at the end of the month so that the team can spend time together. This can enhance their connections and contribute towards a positive workplace culture.

Additional leave

Offering extra paid leave days can attract most employees. It incurs the least cost to the company and appeals to employees from different departments. It's easy to implement and works for companies in the long-run. Set the requirements to achieve this reward clearly. For example, companies can award it to employees who meet their sales quota three months in a row or closed a certain number of deals. It's also important to consider how many leave days to offer to the entire company so that overall productivity is not affected.

Company products and services as gifts

If the company has several product and service offerings, offering them to employees can motivate them. Most companies offer staff discounts for their products, but rewarding employees with customised product packages can excite them to work harder. Employees recognise the value of a company's product offerings, and this can foster brand loyalty among them. It's also a way to promote the company's products and services beyond traditional marketing channels and strategies. Consider creating limited edition or company exclusive products for employees to further attract and motivate them to attain this reward.

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