Employees are motivated by both intrinsic and extrinsic rewards. To be effective, the reward system must recognize both sources of motivation. All reward systems are based on the assumptions of attracting, retaining and motivating people. Financial rewards are an important component of the reward system, but there are other factors that motivate employees and influence the level of performance. In fact, several studies have found that among employees surveyed, money was not the most important motivator, and in some instances managers have found money to have a demotivating or negative effect on employees. 

    Today's emphasis on quality-improvement teams and commitment-building programs is creating a renaissance for financial incentive of pay-for-performance plans. Today financial incentives constitute less than 5% of the U.S. worker's compensation. Organizations adopt alternative reward systems to increase domestic and international competition. The competitive reasons for the growing emphasis on performance-based compensation are companies cutting costs, restructuring, and boosting performance. 

    To ensure the reward system is effective and motivates the desired behaviors, it is essential to consider carefully the rewards and strategies utilized and ensure the rewards are linked to or based on performance. To be effective, any performance measurement system must be tied to compensation or some sort of reward. Rewarding performance should be an ongoing managerial activity, not just an annual pay-linked ritual. 

    Strategies for rewarding employees’ performance and contributions include both non-financial and financial mechanisms.Some of the primary ones are discussed below. The list is not exhaustive, and individual units/departments may identify additional mechanisms that are appropriate for and support their culture and goals. 

     

    • Praise/recognition from supervisors - Praise and recognition from supervisors is consistently found to be among the most important motivators.  Employees want to be recognized and feel their contributions are noticed and valued. It is important that supervisors recognize the value and importance of sincerely thanking employees verbally and/or in writing for their specific contributions. 
    • Challenging work assignments - Challenging/new work assignments are another mechanism available to supervisors to reward good performance. Such assignments can provide employees opportunities to develop new skills, expand their knowledge, and/or increase their visibility within the organization. They also send an important message that employees’ contributions are recognized and valued. In considering such assignments, supervisors should consult employees about the types of assignments that would be most valued, and they should also assess whether workloads will need to be redistributed to ensure employees have adequate time to devote to new tasks.

    • Professional growth and development opportunities- Supervisors may provide employees opportunities to participate in educational programs or other activities that will expand their skills/knowledge (HOOP 2.44 and 2.45). Employees benefit by developing new skills, and the institution benefits from the additional expertise individuals bring to the job. Nelson notes a recent survey found that 87% of responding workers viewed special training as a positive incentive, and it appeared most meaningful to employees with postgraduate education. 

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    • Paid Leave - Supervisors may award employees up to 32 hours of paid leave annually in recognition of meritorious performance (HOOP 2.39C).

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    • Progression through the salary range - Employees may receive salary increases to recognize the attainment of new and/or the enhancement of existing skills/competencies or for assuming increased responsibilities within the scope of the current position. The salary increase represents a progression through the salary range approved for the position (HOOP 5.09).

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  • Merit increases - UT-Houston policy (HOOP 3.04 and 5.09) allows supervisors to give employees an annual merit increase to recognize consistently meritorious performance or successful completion of a project that had a significant impact on a department or the university. The reward may be in any amount up to 5% of the employee's current base salary, subject to the availability of funds. Budgetary information regarding fiscal year merit increases are issued annually as part of the budget process as soon as the institution's fiscal position can be determined. To be eligible for a merit increase, employees must have been employed for at least six continuous months and at least six months must have elapsed since the employee's last salary increase, promotion, salary increase due to progression in the salary range, demotion or transfer from another department. 
    • Promotions and lateral moves - Promotions and lateral moves may be long term rewards that recognize employees’ professional growth, expertise, and capacity to contribute to the institution in new roles. Promotions are typically associated with an increase in salary, and the increase may be any amount up to 10% of an employee’s current salary. For employees with base salaries under $25,000, the increase may be any amount up to $2,500. The new salary also must be within the salary range approved for the position, and employees are subject to a 90-day probationary period following a promotion/lateral move to a new department (HOOP 5.09). 
    • Administrative salary supplements - Employees who assume new/additional responsibilities on an interim basis may receive administrative salary supplements that are paid in addition to the base salary. The supplement is discontinued when the employee is no longer responsible for the additional responsibilities.

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    • Informal rewards - When warranted, supervisors may choose to give employees informal rewards for specific accomplishments/contributions. State law and institutional policy (HOOP 2.07) allow expenditures of up to $50 of state funds and $100 of non-state funds per employee for informal non-cash rewards that demonstrate the supervisor’s/institution’s appreciation. Supervisors can be creative in identifying informal rewards that will be appreciated by the particular individual being recognized, but, in selecting and purchasing rewards, supervisors must be sensitive to the institution’s responsibility to be good stewards of public funds.