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How can rewards affect employee performance?

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Organisations strive for employee engagement, so they can get the best results from them. One of the most powerful strategies used is implementation of a reward system. When employees are recognised and rewarded for their help, it boosts their morale.

Rewards motivate employees to do their best. There are many other benefits of an employee rewards system, many of which directly impact employee performance.

What is a reward system?

A reward system is where employees are rewarded for performing well in their jobs. The system ensures employees who achieve their goals, are productive, and efficient receive rewards commensurate with their efforts and achievements. The rewards can be monetary in nature (cash bonus, increase in salary, special incentive, etc.). The rewards can also be non-monetary (paid holiday, flight tickets, movie tickets, dinner, all-expenses paid vacation, discount coupon, etc.)

Many companies have a point system to offer rewards. Employees are given points for completing their tasks on time or achieving their goals or exceeding their targets. The criteria for awarding points would be informed in advance. At the end of a specific period (quarterly or yearly), employees can redeem the reward points for the reward of their choice.

A reward system includes rewards with recognition. Apart from offering rewards, recognition is something most people desire. An employee who is appreciated or praised in front of everyone by the management would feel very satisfied. Receiving a letter of appreciation or seeing one’s name as the employee of the month can be equivalent to receiving a reward.

How does the reward system affect employee performance?

When organisations offer a well-structured reward system, it helps in improving employee performance. Employees know they can get a reward if they perform well. Where criteria are clearly defined, employees know what they have to do to be rewarded. This motivates them to achieve the goals or targets, or even exceed them.

When they receive the reward or recognition, it further motivates them to continue to do well. Other employees are also motivated to improve their performance, so they can also win rewards. The general morale in the organisation is improved, which has a direct and positive impact on productivity and performance.

The following explains the benefits of a reward system:

  • Studies show that 41% of companies that implemented a recognition system have seen an increase in customer satisfaction. Better performance by employees has contributed to improved customer satisfaction, which has a direct impact on the profitability of a business.
  • There was a 31% reduction in employee turnover in companies having a reward system. Employees whose performance is rewarded would be less likely to quit an organisation. This improved employee loyalty.
  • Studies showed that employees with low-skills are motivated more by financial rewards. High-skilled employees can be motivated by both financial and non-financial rewards.
  • There was an increase in employee performance by 44% when organisations introduced incentive programs for a long-term (more than 6 months). When a short-term program (1 month) was introduced, the increase in performance was 20%. This shows that reward programs produce better results when offered on a long-term basis.

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