How to develop a successful rewards strategy to fuel your business

29 February 2024 / Insight posted in Article

Employee reward strategies are rarely one size fits all, but you can still create a programme that works for your whole organisation. Read on to discover the key elements of a reward and recognition strategy, what the benefits are and how you can develop a strategy that aids talent recruitment and retention. What are reward and recognition strategies?

Reward and recognition strategies are tools that are designed to identify, acknowledge and reward the performance of people within your organisation.

You can recognise your employees for a broad range of achievements that support your organisational goals. That could be meeting sales targets or consistently behaving in a way that embodies your core values. Rewards can be monetary, such as bonuses and stock options, or come in the form of professional development opportunities, more flexible work schedules, personalised gifts and extra time off.

Reward and recognition strategies work hand-in-hand with your salary benchmarking and compensation management and form part of your company’s overall strategy to recruit, motivate and retain talented people.

The importance of reward and recognition in business

Creating an effective reward and recognition strategy sends a clear message to your teams that what they do really matters. By acknowledging successes and rewarding employees with things they actually want, you can develop engaged and loyal employees who are driven to do better.

Recognition and reward strategies have long been a vital part of effective people management, but today, as the competition for top talent increases, building a culture of recognition and showing that you value your employees has become more important than ever.

Here are some of the benefits of reward and recognition programmes:

Increased motivation – Recognising and rewarding employee performance can improve motivation and encourage employees to produce better work more often. One survey found that affirmation, feedback and reward were most effective at motivating employees, even if it’s just a simple “thank you” or “well done”.
Higher engagement – Recognition is one of the top drivers of employee engagement, with an American study finding workers are 2.7 times more likely to be highly engaged when they feel recognised. Research by Deloitte also revealed that employees are 14% more engaged when they work for a company with a recognition and reward strategy.
Lower turnover – Satisfied workers who are engaged, motivated and well rewarded and more likely to stick around. One study found organisations with recognition and reward strategies have 31% less voluntary staff turnover than those without.
A more positive culture – Company culture is one of the most important aspects of organisational success, impacting everything from employee performance to how your business is perceived. Recognition and reward are strongly linked to a positive culture, with one study finding those who feel consistently recognised and rewarded at work are:
twice as likely to go above and beyond
2.2 times as likely to come up with new ideas and drive innovation
2.6 times as likely to think workplace promotions are fair.

Key elements of a successful reward and recognition strategy

A successful reward strategy knits reward with purpose, business with people goals, and culture with values. But putting a fair strategy in place that your employees value takes time and care. Here are the key elements to creating a strategy that makes a difference.

Be transparent

Your rewards strategy will only have a positive impact on your workforce if it’s transparent. You must clearly explain to employees how you’ll recognise high achievers, how often you’ll reward them and what criteria you’ll measure them against. For example, will every high achiever receive the maximum reward, or will there be different reward levels? If there are multiple levels, how will you assign them?

Answering these questions before implementing your rewards and recognition strategy will help you get buy-in from employees and build trust in the process.

Be specific

Recognition and rewards are more meaningful when you tie them to a specific achievement. Embodying organisational values is worthy of recognition, but tie your rewards to something more specific, such as hitting a sales target or leading a team on a successful project. That helps employees understand what you want to see and encourages continued strong performance.

Make it employee-led

Engaging employees in the process is essential in creating a reward and recognition programme they value. The goals and behaviours employees and management think should be rewarded are often miles apart, so talk to employees to create a consensus about what constitutes outstanding performance.

Employee feedback can also help you personalise your rewards. Multi-generational employees have conflicting priorities, so a one-size-fits-all approach won’t do. Instead, canvass employees via employee engagement surveys and in one-to-one and team meetings to discover the rewards that matter to different workers. And make it an ongoing process to keep up with shifting employee expectations, preferences and needs.

Steps to developing a reward and recognition strategy

If you’re not sure how to develop a rewards strategy, these five simple steps can help.

Step 1: Set your objectives

Think about what you want to achieve as an organisation and align your rewards with those goals. The right rewards strategy can help you cut costs, reduce staff turnover, increase morale or achieve other HR and business objectives.

Step 2: Determine recognition methods and reward preferences

Once you have clear goals, think about the type of performance you will reward to achieve them. For example, if your organisational goal is to increase turnover, you might decide that an annual bonus for meeting or exceeding sales targets is the best motivator. On the other hand, if you want to improve customer service outcomes, personalised gifts for excellent customer reviews might be more effective.

Step 3: Put a plan in place

The next step is to create a consistent and repeatable process for recognition and reward. Think about:

Who recognition will come from
How often you will recognise employees
How you will determine an appropriate reward
What your rewards budget will be

Your plan should transform the vague idea of “giving more recognition” into concrete actions that your managers can follow. A crucial part of that is determining measurable performance indicators that are focused, achievable, challenging and provide the basis for feedback.

Step 4: Communicate the plan to employees

Employees must have a clear view of exactly what they’re aiming for to be motivated. You should communicate your plan widely before its launch to give employees the opportunity to understand it and ask questions. You can also release regular updates to keep everyone engaged.

Step 5: Monitor and review your progress

Your rewards strategy shouldn’t be set in stone. Continually review it and evaluate its effectiveness to determine how it’s performing and being received by employees. There may be elements you need to tweak, such as changing how you recognise certain workers or increasing the frequency of rewards.

Watch our webinar from People Advisory expert Dinah Patmore and Samantha Gee, Director at Verditer Consulting, for more tips on developing a rewards strategy that works.

Common challenges and how to overcome them

One of the main challenges when developing a rewards strategy is the ever-changing nature of the workforce. According to demographic data, workforces are becoming older and more diverse, so you’ll need to find new and more personalised ways to reward your teams.

Remote and hybrid working models – the new normal for many organisations – also present challenges. Flexible work practices make employee performance more difficult to observe, so your assessment methods should focus on outcomes rather than presence. However, it’s worth the effort, as rewards and recognition programmes can be an effective way to motivate hybrid and remote workers who can feel less connected and engaged.

Contributors

Dinah Patmore Head of People Relations +44 (0)20 4582 1692