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Greater use of spot rewards and similar forms of incidental bonuses is one of the major shifts in the compensation world today. From 2010 to 2016, a growing number of organizations have incorporated spot rewards into their compensation management practices. A study also found that 71% of organizations plan to increase their use of alternative rewards such as spot cash bonuses, non-monetary rewards, additional PTO, and career development opportunities in the coming years.

This shift is often perceived as a positive one, as these rewards can serve as motivation for employees while also being cost-efficient for organizations. But psychological research suggests there are right and wrong ways to handle spot rewards, and that if handled the wrong way, they can actually lead to demotivation and frustration.

Below are a few tips to help ensure your spot reward program is providing true value to your employees and organization.

Link rewards to behaviors

Research shows rewards can enhance employees’ commitment to goals, efforts to achieve goals, and beliefs that they can successfully achieve goals in the future. But creating an effective relationship between goals and rewards can be tricky. Spot rewards should not be something expected by employees following the achievement of every goal.

In fact, the research suggests that when goals are very difficult, rewarding people only if they reach their goals can actually hurt performance. This is because people’s motivation and self-efficacy decrease once they realize that their efforts could be for nothing in a bonus system where there is no reward if you fail to reach the goal. These negative effects disappear when people are rewarded for their effort toward achieving a goal, rather than achievement of a goal itself.

Ultimately, managers should use spot rewards as a sign of recognition and appreciation of the behaviors that they want to encourage from employees in the future. Spot awards are more effective when they are used to recognize and encourage highly effective behaviors, as opposed to being used as a reward for past accomplishments.

Remember the rules of reinforcement

The motivational value of spot awards comes from using them as a tool for positive reinforcement. Recognizing and rewarding employees for displaying certain behaviors increases the odds of that behavior occurring again in the future. There are four major factors that influence the value of rewards used for positive reinforcement.

  1. . Contingency

To be effective, spot rewards must be tied to demonstration of certain behaviors. Managers should have clear criteria to use as a guide for when to give employees different types of spot awards. This is also important for ensuring equity by creating consistency across managers in their use of awards. Whether an employee receives spot awards should depend on whether they display behaviors that the organization believes are exceptional, and not their manager’s attitudes about what constitutes exceptional behavior.

  1. . Immediacy

In the case of motivation, immediacy equals effectiveness. When managers forget about a reward and push it off to the next week, or worse, wait until the end of the year to distribute rewards to employees, the reward will have less effect on motivation than if it had been awarded immediately following the behavior.

  1. . Satiation

When the same type of reward is used over and over again, it can lose its reinforcing value. In other words, there is such thing as “too much of a good thing” in the context of reinforcement. For example, research has shown that monetary rewards can reduce intrinsic motivation if they are over used. If your organization uses non-monetary rewards in addition to cash bonuses, consider switching up the type of reward given to employees. Keep in mind that reward type should be reflective of the behavior demonstrated, and that not all employees will value the same type of rewards equally. Understanding what motivates each employee can help managers to determine the most appropriate type of reward.

  1. . Size

The size or value of spot awards should reflect the behavior demonstrated. It is important that managers are thoughtful in this decision and avoid choosing arbitrary values for the rewards given to employees. Employees will use past reward values to create an expectation level against which to judge future rewards. If the reward does not meet or exceed this expectation level, employees may feel frustrated and demotivated.

Understand the limits of rewards

When determined and distributed the right way, spot rewards can be an effective way to encourage and motivate employees. But used incorrectly, spot awards can hurt motivation. Even when used correctly, over reliance on spot awards can undermine their value. The motivation people get from positive reinforcement fades quickly. Receiving a spot reward might increase their motivation and satisfaction for a short time, but eventually, the feelings fade. The best way to ensure that your employees are truly motivated at work is to ensure that they find their work motivating. And this requires engaging employees and truly understanding their unique skills and capabilities at a deeper level.

This article was first featured on TLNT.

About the Author

Lauren Bidwell, Ph.D.
Research Scientist, Human Capital Management Research

Dr. Lauren Bidwell is an Experimental Psychologist with a specialization in Decision Making research. Her role involves driving innovative thinking and best practices around talent management and the use of technology to support effective talent decisions. Lauren has engaged with dozens of customer organizations around the world and is an active author and presenter.

About SAP HR Research

Our research team advances the art and science of Human Capital Management by studying the relationship between technology, workforce psychology, and business performance. Our researchers and psychologists uncover trends to keep you on the cutting-edge of technology and thought leadership – and help shape the design of SAP SuccessFactors HCM software.

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