How to Reward Employees on a Budget

You don't have to send an employee on an all-expenses-paid trip to Hawaii to show them that you appreciate their good work. Here are some simple, low-cost ways to recognize your top performers.

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Everyone likes to get a pat on the back for a job well done—especially if that pat includes some type of bonus or other financial compensation or recognition before colleagues. Businesses often face the dilemma of wanting to recognize employees' efforts and performance, but during difficult financial times they may have very limited budgetary resources to do so. However, rewarding employees and motivating performance does not always require a tremendous outlay of money. You may be surprised to learn that if you were to ask some of your employees they may actually prefer other types of recognition.

Starting an employee rewards and recognition program can be overwhelming at first. And the task can seem impossible when you are trying to figure out how to incentivize employees to perform well while staying within a tight budget. In tough economic times, however, small and mid-sized businesses must keep in focus what they want to reward while being creative in coming up with ways to keep the troops happy.

"The goal of any rewards program should be to engender the loyalty and team spirit and have a good workplace where people feel appreciated," says Nancy M. Cooper, chair of the labor and employment group of Garvey Schubert Barer, a law firm based in Portland, Ore. "It's also likely to help you meet business goals especially with small to mid-sized employers."

The following article will discuss how to determine what you want to reward, different types of rewards and recognition, and pitfalls to avoid.

Rewarding Employees on a Budget: Your Goals

Your purpose in creating an employee rewards program may be to create some acknowledgment and motivation for your company team. The purpose behind a recognition program is to help motivate your employees to earn the rewards and ultimately help you meet business goals. Here are steps you can take to design an effective employee rewards program:

• Identify what you want to reinforce. The first step you need to take is to identify the activity or activities that you seek to reward. This can include job performance, such as achievement of sales targets or product development goals or meeting customer timetables ahead of schedule. You can also choose to reward behavior, such as exceptional customer service or team work or leadership. "Before an effective reward or recognition program can be developed, you need to really understand what you want to reinforce," Cooper says. "Do you want to reward positive performance so that employees will strive to succeed? Do you want to reward stellar behavior that serves the best interests of the company? Do you want to reward employees who put forward suggestions that improve the functioning of the company or save the company money? Do you want to reward individual employees or teams?" Once you establish what it is you want to reward, those things should become the focus of the program.

• Motivate your employees. The goals of your employee rewards program can only be met if you get staff "buy in" or participation. "Let the employees know that you are establishing a recognition program," Cooper says. "Let them know that the budget is tight, but it is important to you that there be recognition of their good work and top-of-the-line efforts." One of the best ways to find out what motivates your employees is to ask them -- and that also may help you determine what types of rewards to offer. If you have budget constraints, let employees know so that they are more creative with their suggestions. "The loyalty that is established through recognizing the little -- and not-so-little -- contributions made by your employees is one of the best side effects of a reward program,' Cooper ads.

• Make sure it works for the company. There's no point in starting a recognition program that is not going to motivate employees or help you achieve business goals. So in addition making it work for employees, you have to make sure that it works for the good of the company. That's why it's so important to put thought into the methods of recognition you use and how effective and practical they are for the company. What works for one company may not work for another. "You should customize the reward to make sure it works with and is accepted by your company culture," Cooper says.

Dig Deeper: Personalizing Recognition

Rewarding Employees on a Budget: Types of Rewards

There's an old saying in business that money speaks louder than words. Hence the traditional practice in business of rewarding exemplary employee behavior with bonuses, raises, stock options and other types of financial remuneration. But money is not the only way to recognize employees and surveys have found that some workers actually prefer a more personal "thank you" note, being singled out in front of colleagues, or other forms of recognition.

During a recession or prolonged economic downturn, however, financial rewards may be highly prized by your staff. "Given the current downturn, I can't tell every company that money won't help," says Cindy Ventrice, author of Make Their Day! Employee Recognition That Works (Berrett-Koehler Publishers 2009). "In many cases, employees are being under paid or have experienced furloughs or cut backs in pay."

However, when people feel that they are being fairly compensated, then the best rewards for performance or behavior don't line your pocketbook or wallet. "The recognition that sticks with people doesn't have much to do with money," Ventrice says.

People like recognition. People enjoy being thanked for their work. In fiscally tough times, financial rewards are not always feasible. "A lot of the employers I work with say, 'We are afraid we're going to lose people if we can't give people the raises or the bonuses,'" Cooper says. "But they are finding ways to make their employees more loyal than ever. Employers have to be more creative about how they go about recognizing the good work." There a number of ways this can be done, with little or no financial investment. Some types of ideas include:

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