Organizational Wellness

How to Leverage Reward Power in the Workplace (Without Pitfalls)

Last Updated Dec 9, 2024

Time to read: 10 minutes

Is your reward system falling flat? If your recognition programs are about as thrilling as a Monday morning meeting, it’s time for a serious upgrade.

Whether you’re looking to boost productivity, spark innovation, or keep top talent from jumping ship, the way you recognize and reward your team can make or break your success. There's a reason over 90% of publicly traded companies offer long-term incentives, according to a WorldatWork survey.

But don’t worry—revamping how you tap reward power is totally doable. From understanding what truly motivates employees to sidestepping common reward pitfalls, you’re about learn the insider tips that will make you the Oprah of your office. (But no, you don’t have to give everyone a car.) Let’s get started!

What Is Reward Power?

Reward power is the ability of a leader or manager to influence employee behavior by offering incentives or rewards. These can include bonuses, promotions, praise, or even non-monetary perks like flexible work hours. It’s a form of positive reinforcement that encourages employees to reach goals, maintain performance, or adopt desired behaviors.

Used effectively, reward power can boost motivation and engagement, making employees feel valued and appreciated. However, if misused or inconsistently applied, it can backfire—leading to feelings of unfairness or even resentment within the team.

You can think of it as the workplace equivalent of being the cool parent who always has candy in their pockets. It’s the ability to motivate and influence others by offering something valuable in return for desired behaviors or performance. Like parental bribery, when used correctly reward power can be a powerful tool for inspiring people to deliver their best, but you need to be careful you don't overdo it.

Types of Rewards

There’s no real limit as to what you can offer as a reward or incentive, so let’s break down options into a few easy-to-grasp categories that can help you organize your strategy.

Tangible vs. intangible rewards

Tangible rewards are concrete, often monetary perks that you can touch or spend. These include:

Salary increases
Bonuses or performance-based incentives
Stock options or profit-sharing plans
Job promotions
Perks like coffee shop gift cards or merchandise

Intangible rewards, on the other hand, are those that you can’t physically touch. While not physical, they can be just as impactful. They include:

Public recognition or praise
Flexible work schedules
Opportunities for career advancement or promotions
Autonomy in decision making
Positive work environment and culture

Intrinsic vs. extrinsic rewards

Intrinsic rewards come from within. They’re the personal satisfaction you get from a job well done, such as:

Personal growth through learning and development
Job satisfaction from meaningful work
Increased responsibility and ownership over projects
Fulfillment from contributing to the organization’s success
The pride in learning a new skill

Extrinsic rewards, on the other hand, come from external sources. These are the tangible benefits, public recognition, and status symbols that come from others acknowledging your hard work. They can be things like:

Monetary bonuses
Paid time off
Awards or certificates of achievement
Gift cards or vouchers
Employee of the Month or other recognition programs

The Psychology of Rewards

Incentivizing employees to excel at their jobs is a great tactic, especially if you’ve got any specific KPIs that you’d like to hit. But why do rewards work so well, exactly? There are a couple of psychological theories:

Expectancy theory: This theory suggests that people are motivated when they believe their efforts will lead to good performance and that performance will result in valued rewards. It’s about seeing a clear path from effort to reward.
Reinforcement theory: This focuses on the idea that behaviors followed by positive consequences are likely to be repeated. The goal is to create a positive association with desired behaviors.

However, it’s important to be careful here. An over-reliance on extrinsic rewards can lead to a constant need for bigger and better rewards to maintain motivation. It’s a slippery slope that can be hard to sustain.

Similarly, adding external rewards to an already enjoyable task can actually decrease motivation. This is known as the “overjustification effect.” It's when a worker’s intrinsic motivation for the activity decreases because they start to attribute their engagement to the external reward rather than their personal enjoyment or interest.

The Benefits of Reward Power

When used effectively, reward power can have a tremendous impact on your organization:

Motivation Boost

Reward power can significantly increase motivation, turning routine tasks into opportunities for recognition and reward. This heightened motivation can lead to increased productivity and job satisfaction across the board. Employees who feel their contributions are rewarded are up to 10 times more likely to strongly feel a sense of belonging within the organization, according to an O.C. Tanner study.

Performance Improvement

When employees see a clear link between their efforts and rewards, they’re more likely to strive for excellence in their work. This can lead to a cycle of continuous improvements as employees push themselves to reach new heights.

Retention

A well-designed reward system can improve employee retention by making your company a more attractive place to work in the long term. In fact, companies with strong incentives see a reduction in turnover of over 25%, according to a study published in the Health Services Research and Managerial Epidemiology journal.

Cultural Impact

Rewards can shape your company culture, reinforcing values and behaviors you want to encourage. Over time, this can create a positive, high-performing culture that becomes a competitive advantage for your organization.

Innovation

The right rewards can encourage risk-taking and creativity, fostering an environment where new ideas thrive. This can have a huge impact, as innovative companies are over 10% more profitable than the average company, according to a McKinsey study.

Employee Engagement

A well-implemented reward system can significantly boost employee engagement. Engaged employees are more committed to their work, more likely to go the extra mile, and more likely to speak positively about their workplace. Rewards and other programs that improve employee engagement are super important, considering that 65% of the workforce is disengaged at work, according to a 2022 Gallup survey.

Teamwork and Collaboration

When designed thoughtfully, reward systems can encourage teamwork and collaboration. This can lead to improved communication, better problem-solving, and a more cohesive work environment.

Avoid the Common Pitfalls of Reward Power

Even the most well-intentioned reward systems can go off the rails if you’re not careful. Here are some common pitfalls to watch out for:

Overreliance on tangible rewards: While a fat bonus check might seem like the ultimate motivator, leaning too heavily on tangible rewards can backfire. Employees might start focusing solely on what they can gain materially, losing sight of the intrinsic value of their work. Before you know it, you’ve created a workforce that’s more interested in the next payout than the quality of their work or the success of the company.
Creating a sense of entitlement: If you’re not careful, rewards can transform from pleasant surprises into expected rights. When employees start viewing rewards as guarantees rather than recognition for exceptional performance, you’re in dangerous territory. This entitlement mentality can lead to decreased motivation and a “what’s in it for me” attitude that’s toxic to team morale and productivity.
Unfair or inconsistent reward distribution: Nothing sours a workplace faster than perceived favoritism in reward distribution. If your reward system isn’t transparent and consistently applied, you risk creating resentment and demotivation among your team. Inconsistency can also lead to confusion about what behaviors or achievements are truly valued, diluting the effectiveness of your reward power.

Tips to Leverage Reward Power Effectively

Now that you’re aware of common pitfalls, it’s time to learn how to wield reward power like a pro. The following strategies will help you implement the ideal rewards for your team, maximizing productivity and reducing friction.

Strategic Alignment

Aligning your reward system with your organization’s strategic goals can maximize its effectiveness. This alignment will help you make sure that every reward reinforces behaviors and outcomes that drive your company forward. By creating this synergy, you’re motivating your employees to steer the entire organization toward success.

Link rewards to goals: Your reward system should guide your team toward organizational objectives. You can confirm that your rewards are pointing in the right direction by clearly tying them to both company goals and individual performance metrics. This alignment will help you rest easy, knowing that when you’re handing out kudos (or cash!), you’re reinforcing behaviors that truly matter to the business.
Clear communication: Don’t leave your team guessing about how to earn rewards. Be crystal clear about expectations and the connection between performance and rewards. Regular check-ins and transparent performance metrics can help keep everyone on the same page.

Designing Effective Reward Systems

The design of your reward system can make or break its impact on employee motivation and performance. A well-designed system takes into account the diverse needs and preferences of your workforce, while maintaining fairness and accuracy.

By focusing on these key elements, you can create a reward system that resonates with your employees and drives desired behaviors:

Variety and choice: One size doesn’t fit all when it comes to rewards. Offer as many perks as you can to cater to different preferences. Some might crave cash bonuses. Others might value extra vacation days. And some might be motivated by professional development opportunities. By offering choices, you’re showing that you value your employees as individuals with unique needs and motivations.
Timeliness and consistency: When it comes to rewards, timing is everything. Provide rewards quickly to reinforce the connection between performance and recognition. Consistency is equally important — make sure that your reward system is applied fairly across the board. This doesn’t mean everyone gets the same rewards, but rather that the criteria for earning rewards are consistently applied.
Fairness and transparency: Your reward system should be as clear as possible. If people start looking at your rewards as mysterious or arbitrary, then you’re in trouble. Publish criteria for rewards, be open about how decisions are made, and be prepared to explain your reasoning. Transparency builds trust, and trust is the foundation of an effective reward system.

Beyond Monetary Rewards

While financial incentives are important, a truly effective reward system goes beyond just monetary compensation. Non-monetary rewards can have a more lasting impact on employee satisfaction and engagement. These types of rewards tap into intrinsic motivators, creating a deep sense of commitment and loyalty among your team.

Recognition and appreciation: Never underestimate the power of a sincere “thank you” or a public shout-out. Verbal praise, team-wide recognition, or even a simple acknowledgment in a meeting can go a long way in boosting morale and motivation. These non-monetary rewards can be more meaningful than a small bonus as they tap into our deep-seated need for appreciation and respect.
Growth and development opportunities: Offer chances for your team to level up their skills. This could include funding for conferences or courses, mentorship programs, or stretch assignments that allow employees to grow their skills. By investing in your employees’ growth, you’re both rewarding them and setting them up for future success.
Work-life wellness initiatives: Remember, your employees are humans, not productivity machines. Offer perks that acknowledge their life outside of work, like flexible work arrangements, remote work options, or wellness programs. Over 90% of professionals benefit from flexible work arrangements, according to a Deloitte survey. These initiatives show that you care about your employees’ overall well-being, not just their output.

Transform Your Workplace with Strategic Reward Power

Harnessing the power of rewards can help create a culture of recognition that drives performance, boosts engagement, and aligns with your organizational goals. By implementing a well-designed reward system, you can motivate your team, foster innovation, and create a workplace where employees feel valued and inspired to excel.

A comprehensive employee wellbeing program can amplify the positive effects of your reward strategy. By integrating wellbeing initiatives into your reward system, you create a holistic approach that recognizes and supports your employee’s overall health and happiness. This translates into more productive and engaged employees because, as revealed in Wellhub’s Return on Wellbeing 2024 report, 99% of HR leaders say their wellbeing program increases employee productivity.

Wellhub specializes in creating tailored wellbeing programs that can complement your motivational strategies. Our team of experts can help you develop initiatives that go beyond traditional support, focusing on holistic employee wellbeing that bolsters satisfaction. Speak to our Wellhub Wellbeing Specialists today to see how we can help.

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[*] Based on proprietary research comparing healthcare costs of active Wellhub users to non-users.