How to Reward Employees on a Budget

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:

Opportunities. Sometimes the most meaningful form of recognition involves some type of opportunity as proof that an employee is valued by an organization. Opportunities can range from being asked to sit on a panel discussion on your manager's behalf, an educational or mentoring opportunity, or being sent to an industry conference, Ventrice says.

Exposure. Another meaningful form of employee recognition is giving that person exposure to the rest of the staff, to important clients, or to others in their field. This can include everything from being pointed out as the most creative software developer of the month on an in-house bulletin board to being invited to lunch with the boss and one of the company's key clients. Create an employee-of-the-month parking space. Another idea: "Elect employees to a 'Wall of Fame,'" Cooper says. "This is a public space in the company where photos of employees who have accomplished something truly special are displayed, along with the details of what they have done."

Experience. Sometimes the most sincere form of flattery is being trusted with more challenging work. "I've heard a lot of people say they were given a new responsibility or they were taking on another customer as a new challenge," Ventrice says. "People have to be aware that the underpinning of recognition is a respectful relationship." If the company trusts you with new challenges, or tells you that you're too valuable to take vacation at the same time as a senior manager -- that may be all the recognition you need.

Praise. Something as simple as writing a personal thank-you note to an employee for a job well done can leave a lasting impression. "Several times a week I hear stories from people who say, 'Here is the most meaningful recognition I have ever received.' And it's a hand-written note," Ventrice says. Personal thank-yous can be very powerful. Some people keep them for 10 years. Other people have taken a bar napkin featuring scribbles form the boss and had it framed.

Personal appreciation. Other meaningful ways of rewarding employees involve customizing a personal sign of appreciation. Ventrice says one manager told her of an experience with an employee who was logging so many hours that he said jokingly one day, "I do so much for you that you should be buying me an SUV." So the manager went out and bought a toy SUV and gave it to the employee and said, "You really do a lot and if I could buy you an SUV, I would. Let this remind you how valued you are."

Allow flexibility in an employee's schedule. Extra efforts can also be rewarded with understanding of the family/life balance that many workers are trying to achieve. That can range from allowing an employee to telecommute one day a week in exchange for high performance to allowing them flexibility to start earlier and leave earlier.

Gift card rewards. Use a limited budget for employee rewards to buy a series of gift cards at popular coffee shops, book stores, or online retailers and let the employee choose one when they have done something positive or noteworthy. These can also be administered by co-workers to employees who have exhibited positive behaviors, either helping other staff members, going the extra mile in serving a customer or by their team work.

Employee rewards that commemorate years of service or milestones tend not to work. "They get handled badly in so many organizations," Ventrice says. "HR is typically responsible for sending out the plaque. It goes out three months to three years late. It goes through an interoffice envelop instead of being presented by a manager." It's a sign that no one really cares, Ventrice says.

The most important thing to remember about a recognition and reward program is that you are trying to build a team environment, stimulate employee interest, and create positive behaviors, Cooper says. "This doesn't always take a lot of money," she adds. "It does take some creativity, some listening and the ability to say thank you to those who do the work, provide excellent customer service and make your company the valuable asset that it is."

Dig Deeper: Building a Culture of Employee Appreciation

Rewarding Employees on a Budget: Pitfalls to Avoid

There are both legal and moral minefields to try to avoid when starting an employee rewards program. You need to really think this through, understand your motivation, and communicate to managers how to distribute rewards so that every employee has an equal chance.

"It is important to be consistent in how the rewards and recognition are handled," Cooper says. "Be sure you train your managers to not give the award to the same person time after time. Develop guidelines that outline how often rewards or perks are given out, and the value of them. Be sure that the system does not just turn into a popularity contest." Here are some of the do's and don'ts when starting an employee rewards program:

Don't let it become a popularity contest. If co-workers are able to nominate each other, you need to take steps to make sure that the same clique of friends isn't just always nominating each other. You want to take steps to make sure any recognition is actually being given based on merit. Some possible steps might be to make nomination forms include a description of the meritorious behavior and make co-workers sign the forms so that managers at least know who is nominating whom

Don't give the perception of playing favorites. If the nominations are coming from management, be careful to spread the joy around. "There is a danger of giving the perception that the same group of people is being rewarded all the time or that only favorites are rewarded and that there is no real chance for anybody else to be considered," Ventrice says. If an employee is prone to think they are being treated differently based on some factor other than work performance, this may feed that insecurity and suspicion.

Do communicate the criteria. When advertising the program to employees make sure you spell out very clearly what the rewards are based on, what criteria is used to choose winners, and how everyone in the company is eligible.

Do your homework when building the program. Put together a recognition team made up of managers and supervisors in different roles throughout the company. Get the team to come up with ideas, survey employees, and monitor how the program is working. Make sure managers are trained in how to administer the awards so the program works to improve overall performance.

Do start small with gift cards or a program to reward a specific behavior or goal. The safest types of programs that don't get a company into trouble are programs that start small, such as distributing gift cards worth $5 or $10 attached to them as spot awards. You may want to focus on one goal initially, such as boosting service, and reinforce when rewarding employees that they helped the business meet this goal.

Employee rewards don't only have to single out the individual either, Ventrice says. You can set team goals for certain groups or the entire company and when you achieve those have some type of celebration. "I know some manufacturing companies that set goals and called everyone out to the front lawn and made the announcement that they had met the goal," Ventrice says. "They had a big pizza delivery and everyone celebrated. It doesn't have to be anything big or anything that they know is coming. It's about putting fun and excitement into meeting the types of challenges we need to meet to be successful in the current economy."

Dig Deeper: Employee Recognition and Reward Programs

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Additional Resources

How to Reward Employees –– Without Raises or Promotions
HR.com is a business that helps spread HR best practices.

How to Give Effective Praise
Nelson Motivation is the website for Bob Nelson, a columnist and author of 1001 Ways to Reward Employees.

The Carrot Principle
Blog by Adrian Gostick, co-author of A Carrot a Day: A Daily Dose of Recognition for Your Employees with Chester Elton .

25 Ways to Reward Employees without Spending a Dime
The consummate list by HRworld.com.