The overriding principles to follow in this can be summarised as:  

1. Design rewards that reflect the reality of the individual jobs and teams in which they are given. 
2. Link rewards clearly and consistently to performance.  
3. Make sure that reward schemes and how they are administered are seen as fair. 

See the practice summary for the main insights and practical recommendations for action. 

See the scientific summary for our methodology and technical information on the research and study references.

What’s the impact on motivation and performance? 

• Both incentives and recognition are well worth using for effective people management. 
• Don’t assume that one ‘carrot’ is as good as another; consider factors that maximise the impact of incentives or recognition. 
• Managers should not back away from introducing financial incentives due to fears that they will crowd out intrinsic motivation. Incentives or recognition are only likely to demotivate if they are seen as unfair or exploitative.  

Connecting rewards to performance 

• For financial incentives to work effectively, they should be linked to the achievement of performance standards or targets.  
• Managers must make sure they socialise performance goals and get employee buy-in.  
• An obvious approach to socialising goals is through concerted communications on why they are important for the organisation.  
• It might also help to actively involve staff in setting objectives. However, we do not advise simply getting employees to set their own goals. It may be worth giving guidance or training so that employees and their line managers can effectively set goals jointly.  

Types of work tasks 

• Although the effectiveness of rewards varies to some extent with the nature of jobs, people managers and HR professionals should not in general be concerned that they will harm motivation.  
• All the same, where there is the option or need to direct rewards to certain jobs, it is sensible to prioritise jobs that are either more complex on the one hand, or less interesting or meaningful on the other hand. 
• To support this – and to inform wider activity to enrich jobs – it may help to gauge the perceptions of your staff on aspects including job complexity, meaningfulness of work, and job interest. Measures of these can be found in the CIPD’s Good Work Index. 
• While financial incentives and recognition schemes should be linked to fair performance standards, they should not lead to overly prescriptive styles of management that reduce work autonomy.  

Fairness in rewards 

• HR professionals should carefully think how to make incentives and recognition feel fairer to employees:  
• Familiarise yourself with the components and dynamics of fairness, reflect on how they relate to your organisational context and communicate these insights to people managers. 
• Support distributive justice by assessing the fairness of rewards; for example, through pay gap analysis. 
• Use surveys, focus groups or forums to gauge staff views on whether the processes and decisions on incentives and recognition are fair, and use these insights to inform change. 
• Make some use of subjective measures to assess people’s performance, without overly relying on them. 
• If using performance ratings to allocate incentives, consider giving a greater number of categories to assess employees (for example, five). 

The allocation of rewards 

• Prioritise team-based rewards over individual ones, but within teams prioritise equity (or fairness) over equality. This requires a balanced approach that highlights the value created by a team and gives individuals due recognition of their personal contributions. 
• Consider the size of teams: their composition and structure should reflect the needs of the business, but incentives and recognition should be allocated to as small groups as possible. 
• To facilitate these approaches, ensure there is a clear understanding of the nature of each team, what its role is, and how its members work interdependently to create value. This is important for the effective running of an organisation in any case, but will also help HR professionals to devise incentives that are relevant and increase motivation and performance.