Do you have a reward system for your employees? Many dealers make it a habit to reward an employee who goes the extra mile. As business owners, we know that recognition makes people feel good about themselves. Positive reinforcement increases motivation levels and sets an example for others in the organization, showing them the kind of effort you value.

It turns out that rewards are good for the bottom line, too. Organizations with reward systems in place enjoy 31% lower voluntary turnover among employees, according to “The State of Employee Recognition,” a study by consulting firm Bersin by Deloitte. In the study, at the companies that had reward systems, employee engagement, productivity and customer service were 14% higher than in companies where recognition does not occur.

So there are plenty of good reasons to make time to praise employees for a job well done. Yet not all reward systems are effective. If you haven’t taken the time to think about how and why you are rewarding your employees, your rewards may not be as appreciated as they could be.

Is Your Reward System Outdated?

Some reward systems are based on outdated models that, while given with the best of intentions, end up demotivating employees instead of motivating them. Examples of ineffective reward systems include those based on tenure, an employee of the month program, or incentive-based rewards: If you do this, then you get that.

The aforementioned study found that tenure-based reward systems have no impact on organizational performance and don’t create much value. Employee-of-the-month awards can often generate resentment among peers and the belief that picks are political or popularity contests.

Finally, rewards that are based on the carrot-and-stick approach aren’t really motivating at all. The carrot-and-stick approach worked well for typical workplace tasks of the early 20th century, such as manufacturing and farming. Most modern jobs are more complex, self-directed and require problem-solving skills on a daily basis.

The Modern Reward System

Today’s most effective reward systems are modeled on psychology and the study of human nature. Many traditional psychology models, such as Maslow’s hierarchy of needs, are considered to be outdated for today’s workforce.

Money is no longer the primary motivator for most employees, which is why external carrot-and-stick incentive rewards are considered ineffective. When an employee focuses on the reward rather than the work, creativity and initiative get stifled. This new school of thought, backed up by scientific studies, is outlined in the book “Drive” by Daniel Pink.

Humans are primarily motivated by three factors: “Autonomy” is the desire to direct our own lives. “Mastery” is the urge to get better at something that matters. “Purpose” is the yearning to do what we do in the service of something larger than ourselves.

An effective reward system is designed to help fulfill these needs. So when exactly do you give a reward? Rather than set a reward as an incentive, as in “if you do this, then you get that,” it’s better to give a reward based on behaviors and results, as in “now that you’ve done that, I’m giving you this.”

A “now that” reward is given spontaneously when someone goes above and beyond what they are required to do. For example, when an employee takes initiative on something without being asked, receives praise from a customer, solves a customer’s problem, or works long hours to get a project done. Of course, outstanding sales and service performance are included in these categories.

The “now that” reward is unexpected and therefore appreciated by employees more than a reward that was dangled in front of them. Additionally, giving a reward after the fact helps to keep employees focused on the work instead of on the reward. This encourages them to take pride in what they’re doing and helps to satisfy their need for mastery. You are not controlling the employee and the reward was not contingent on getting something done.

Rewards don’t have to be formal. In fact, many employees don’t like formal award ceremonies. The modern reward system makes recognition easy and frequent. Rewards can also come from peers, and some companies have adopted a reward system that allows employees to recognize fellow employees.

It’s also important to share recognition with the rest of the employees in your organization. When someone does something great, email the entire organization or share the story in a companywide meeting. This makes all of your employees feel good. As a bonus, it’s a good way for you to promote behaviors and results that are valued by other employees.

Reward Ideas

A reward does not have to be large to be meaningful. How hard is it to say a simple “thank you” to an employee? To increase the impact, say it publicly in front of their peers.

When I ran a dealership, I occasionally received a call from a customer who wanted to share a good experience they had with one of my employees. When this happened, I would always make sure to go find that employee and let them know what a great job they had done. If you do this as a dealer, I guarantee your employee will be on Cloud Nine all day. Never underestimate the power of a simple “atta boy” when given in the right way.

Monetary rewards are always welcome, of course, but monetary rewards don’t have to be huge. Ideas include:

• Gift cards to local restaurants or stores

• A copy of your favorite business book

• Lunch with the boss or a group lunch

• T-shirt or ball cap

• Breakfast treats, such as donuts or bagels

• Offer to pay for a work-related course or seminar

Even better is taking the time to know your employees, learning what they like, and getting them something you know they’ll appreciate. If they’re into yoga, get a gift certificate for yoga apparel. If someone is a sports fan, buy tickets to his or her favorite team’s event. The more thoughtful and personal your gift is, the more appreciated it will be.

If you have a reward system in place, it may be time to evaluate how effective it is. Do your employees value your reward system and display excitement and gratitude when rewards are given? Or do they shrug and say it’s not that big of a deal?

A rewards system based on fulfilling our most basic psychological needs will help your employees feel their contributions are truly valued.

Mike Esposito is president and CEO of Auto/Mate Dealership Systems and an expert in dealer management system (DMS) technology. Contact him at mike.esposito@bobit.com.