Looking for ways to boost morale, productivity and retention? Spot awards may be the way to go.

They are the most popular recognition incentives among employees, a recent study shows. The best part: The incentives usually amount to less than 1% of base pay. That also can makes this option attractive to C-levels. And the awards don’t even have to be given in cash.

Spontaneity grabs ‘em

Traditional end-of-year or quarterly bonuses cost employers an average of 10% of base pay yet often have a lower payoff in morale and retention.

Reason: Employees appreciate them less because they expect to receive them for reaching certain goals. By their nature spot awards are spontaneous and paid out immediately. Honorees are pleasantly surprised and see the organization values their work.

Here are four keys to successful spot bonus programs, according to benefits consultant Ken Stahlmann:

1. Creativity is crucial

The most effective programs typically give out awards weekly or monthly. To avoid over-stretching the budget – and avoid a ho-hum attitude setting in – creativity is a must.

One way that never gets old: combining time off with a second, non-cash award.

Example: One firm gives a half-day off in combo with movie passes once a month. Another, at weekly staff meetings, holds a random drawing for a dinner gift certificate, plus permission to leave work early once.

2. Make it personal

Rewards have more lasting impact when they’re geared to people’s personal needs or interests. Two examples:

• one firm with many foreign-born, low-wage employees awards a $20 pre-paid phone card after 90 days of service, and a $100 card for outstanding work, and
• another firm with a lot of sports nuts took a few top-performers to a ball game. Managers said it was the best $200 they’ve ever spent in terms of creating ongoing enthusiasm.

3. Add structure

The awards may seem spur of the moment, but the most effective programs have a fixed budget and structure set before anything is handed out.

Example: One retail firm awards “points” for good work. Folks can then trade in their points for store merchandise. By letting people bank points for more valuable rewards, the employer saw a solid jump in retention.

Other organizations prefer to let employees reward each other. For instance, a small healthcare provider keeps a “goodies box” onsite – paid for in petty cash and stocked by employees themselves.
When someone spots a co-worker going the extra mile, he or she pulls out a prize and awards it.
The program is a huge hit: It’s immediate and personal, yet structured.

4. Don’t let good intentions backfire

Most spot awards go over well. But keep these issues in mind:

• For most cash or cash-value awards, there are tax implications (just as with traditional bonuses)
• Awards need to be spread around or else resentment can creep in
• Make sure honorees don’t mind being the center of attention (some firms have accidentally alienated people they tried to reward), and
• Make sure the reward is something people actually want. One firm that awarded a VIP parking space next to the CEO found no one used it. No one wanted the CEO knowing what time he or she came and left.