What Is a Rewards System? (Plus Types and Tips to Use)

Updated March 10, 2023

Employees can feel more encouraged to do their best work if they feel valued by their team and workplace. If you're a team leader or a manager, consider designing and using a reward system to help motivate your team members. Understanding this encouragement method can help you successfully establish one at your organization. In this article, we define employee reward systems, explain what their functions and benefits are, discuss the four different reward systems and provide tips for implementing an effective system.

What is an employee reward system?

An employee reward system is a motivation tactic organizations use to help their staff feel encouraged to complete high-quality work. It's different from an incentive program because incentives are goal oriented and combined with a reward. A reward is for the team members who complete exceptional work or are a great asset to a team.

Companies may often use rewards as extra encouragement by supplementing their employee's salaries. For example, an employee can earn a bonus at the end of a pay period on top of their base salary. Employees may also earn other tangible or monetary rewards separate from their paycheck. This can include additional paid time off, company lunches or gift cards.

Functions and benefits of a reward system

Here are some reasons you might implement a reward system:

Higher attendance: You may notice an increase in attendance when you use a reward system because it can provide more motivation to show up to work and do their tasks. It may also encourage employees to stay at the organization longer.
Better work quality: Your team's work quality may increase because its members are working toward something else besides their base salary. This benefits everyone because you receive work of a higher quality and team members get rewarded for their improvement.
Greater job satisfaction: Employees may experience enhanced job satisfaction with a reward system because organizations value and appreciate their contributions. Because of this show of gratitude, your team members may feel more loyalty to the company.
Faster project completion: If your team members are working productively and doing their job well to earn a type of reward, it can help meet deadlines for projects early. This can improve the image of your organization because you're meeting project deadlines earlier than expected and with quality work.

4 types of employee reward systems

While there are several ways to reward employees, here are four options you can implement to help boost your team's morale:

1. Monetary

You can create a reward system based on monetary compensation, like a bonus. A bonus can give your team members something to look forward to and to work efficiently to earn. You might give out bonuses either at the end of the year or every six months. This type of reward system works best with employees motivated by money. It can also help create bonds within your team if you make earning the bonus a friendly competition.

Besides bonuses, here are other monetary rewards you can use in your program:

Profit-sharing plans
Stock options
Additional paid time off
Tuition reimbursement

2. Non-monetary

For teams that prefer perks other than bonuses, a non-monetary rewards system may help motivate them. This kind of system offers them something. For example, you can present them with a small prize or fringe benefit if they were the top performer in their department. This can encourage your team members to work more productively, which can help projects reach their deadlines on time or early.

Here are other non-monetary rewards you can use to encourage the company's employees :

Catered lunches
Opportunities to leave work early
Remote work if possible
Flexible work schedule

3. Assistance

An assistance system is when companies support employees in maintaining a healthy work-life balance by providing services that benefit their physical and mental health. This program type may help employees have clearer minds and healthier bodies, which can improve their work performance. While not a traditional reward, assistance programs can help employees feel valued and supported.

Benefits you can offer under an assistance program include:

Discounts to local health services, like gym memberships or spa treatments
On-site visits from mental health professionals
Instructional sessions on techniques to manage stress, grief or other challenges

4. Recognition

A recognition rewards system is about sharing an employee's accomplishments with the rest of an organization. This can look like having an employee of the month celebration or an end-of-year awards ceremony where you can talk about several employees' work-related victories. By doing this, you can encourage team members to work harder to receive this level of acknowledgment.

Recognition can be as simple as offering verbal praise to your team members daily, weekly or monthly. You may also write them a note detailing how much you appreciate them and their dedication to their role. This is another way to help create a positive working environment for everyone.

Tips for implementing an effective reward system

Here are some tips you can use to implement a reward system in your workplace:

Ask your team members: If you're not sure what your employees would like, ask them. Hearing directly from employees about what motivates them can help you select the type of system to implement.
Make the rewards realistic: It's helpful to design a realistic reward system for employees to sustain the company. For example, during a busy season, you might offer a $50 increase to an employee's check at the end of a pay period rather than promising them a day off.
Create group rewards: If the organization you work for has the means, consider creating a group rewards system. This can involve dividing your team into smaller task groups and rewarding the group that produces the best work.
Request feedback: Once you've had the rewards system in place for a certain amount of time, ask your team member their opinions about it. Use their feedback to make minor adjustments as needed.
Change the rewards: It may help to keep team members interested and motivated if you rotate the type of reward system you're using, either weekly, monthly or yearly. For example, you might replace your weekly recognition system with a monetary reward around the holidays as extra motivation.