How To Set Up a Points-Based Reward Program

I received this question from a colleague wanting to help a client on how they should set up a points-based reward program.

Some individuals advocate certain ideas as being best practices. Often incentive and reward providers espouse these principles as being absolutely right.

With all this advice out there I will do my best to be objective.  I will provide you with some pros and cons along the way for what you can do.

Steps to Consider First

1. Always start with your big why or purpose for designing an incentive or reward program.

Incentive programs are a method used to encourage identified people to perform specific actions or behaviors within a defined time period. Who? What? When?

Businesses use incentives and points-based rewards to “motivate” employees to achieve specific results. They are often used in conjunction with sales campaigns and with attracting and retaining customers.

So, who is it that you want to encourage to perform a certain task?  Be really specific about the behavior you need them to do. How often must they perform this task? Or when does it need to be completed by?

The main idea behind points-based rewards is to move employees away from just cash. The non-monetary focus allows employees to focus on getting something that is meaningful to them that they might not generally spend money on themselves.

2. List the reasons for specifically using a points-based reward program.

 Why are you choosing a points-based rewards system instead of cash or using gift cards?

The benefits of using points-based rewards:

  • Easily understood reward system as a majority of your employees will be familiar with points-based loyalty rewards, i.e. credit cards, major brand consumer cards, etc.
  • Straightforward and simple online administration for to manage within a reward program.
  • Great tool to use to get team members to collaborate on performance goals and projects.
  • Points can be given for reaching various targets towards the end goal and/or for the deadline due date.
  • Provides an alternative to having to handle cash or add monies to payroll statements.

Downfalls of points-based rewards:

  • Depending on the value assigned to the points it can be unclear to employees what the points are really worth.
  • When employees don’t redeem their points that leaves the company with unclaimed liability.
  • With unclear point value employees can feel disappointed when they see the associated value of gift items available in a gift catalog.
  • You may have a limited array of gift merchandise items for your employees to choose from and redeem their points.
  • Merchandise mark up cost by your vendor for the available items.
  • Tackling the right payment method for the points so that you pay on employee redemption versus paying up front on the issuance of all points.

3. Discuss with other leaders whether using points-based rewards is the right reward to give to people.

Create a business case for using a points-based rewards program for your leaders and stakeholders. Outline in your plan the use of 90-day action plans for monitoring and course correcting the implementation of your program.

If you ask employees what they want, they will typically say money. However, when you give them a choice between a merchandise gift or experiential reward and the cash value, people will work harder for the tangible or experiential reward. The reason is they would not likely justify spending that amount of money on themselves for such a gift.

When given cash people tend to pay off bills and pay for essentials. The so-called reward is completely forgotten with no lasting association with the company. It gets buried in the pay statement.

4. Identify the specific actions you want to improve upon in clear, objective, and actionable wording and how you want it done.

I will always remember visiting a power utility company that had once-upon-a-time given $50 gift cards to teams whose department leaders submitted an accident-free report either on a monthly or quarterly basis.

But look at what you’re rewarding – a report with no accidents recorded. This $50 gift card caused supervisors and employees alike NOT to report minor accidents. That way their report was clean and they all got their reward.

It was not safe behaviors being rewarded, it was a piece of paper without any accidents written on it.

As far as safety is concerned, the above reward example is no longer permissible by law.

However, learn carefully from this. Spell out specifically the positive actions you want people to actually do, not what you don’t want. Ensure to tell them how you want it done so there are no unethical practices or gaming for the rewards.

5. Determine the how you are going to be able to track these activities.

How will the employee, supervisor, and manager know that the desired behavior was completed and done correctly? You and they need to know what the end product looks like when it’s done. How will you know it when you see it?

If certain activities are repeated, what are the quantity numbers, time-frequency, completion rate, and quality of the outputs? All these factors need to be measured in whatever way is possible before rewards are distributed.

6. Consider the right way for how you will measure the desired activity.

It is important to measure productivity and desired behaviors appropriately.

Percentage of products manufactured: If you are manufacturing widgets you will be looking at the percentage of products that are manufactured correctly to specifications and on time.

The number of online statement conversions: If you are working in retail banking, it may be the number of clients without online banking whom you introduce to receiving their statement online.

The number of sales per month: If you are in telemarketing and a sales campaign is on, it will be the representative who closes the highest number of sales that month.

Set up the systems, recording methods and reports, and the online processes needed to measure your target activities.

7. Formulate the levels and the appropriate values of points-based rewards for achieving the various performance activities.

Different behaviors merit different valued rewards. You can reward incremental progress towards an end goal or simply wait for the full task or output to be completed.

You don’t reward an isolated instance of a behavior. You want consistent and repeated occurrence of the behavior over time.

Create a matrix that looks at different levels of behavioral measures to make it easy for supervisors and managers to identify when they see such actions. Then match these behaviors with an appropriate point-based reward level.

A matrix guide might have criteria such as the level of impact of the actions (isolated or repeated), the frequency of occurrence of the behavior (once or often), the number of people impacted by the actions (few or many), alignment with the organizational values (consistent or inconsistent), and the achieving of a business goal (identify goal).

Here are some examples of matrix levels by description rather than their broken down categories.

Level 1: Could be a low impacting and singular and positive action to one person, or a team, that demonstrates exemplary performance supporting our company values.

Level 5: In contrast with Level 1, a Level 5 act could be a high impacting action, that has been consistently done, which has a direct impact to a department and achieved a strategic goal while supporting our values.

8. Meet specific employees’ needs by ensuring point-based rewards can be redeemed for items that are meaningful and motivational.

Employees need to feel motivated by the choice of options they have available to them when they redeem their points.  Depending on the demographics and cultural makeup of your employees, consult with your vendor to scout out appropriate merchandise. And there are always name brand gift cards that might appeal to some of your employees.

There is no consistent strategy or best practice as to the value you should associate with points. Some of the pure incentive vendors suggest ½ a cent (0.005) per 1 point. But you could use half-a-cent, one cent, 10 cents, or even a dollar per point.

It could look like the following:

  • ½ a cent (0.005) per 1 point so 100 points = 50 cents equivalent
  • 1 cent (0.01) per 1 point so 100 points = $1
  • 10 cents (0.10) per point so 100 points = $10
  • $1 per point (1.00) per point so 100 points = $100

The key is making sure that the point value reward looks like a reasonable reward for the action performed. I think it is best not to use the dollar per point scenario because it looks too much like pure currency.

I like the 10 cents per point because it is easiest to give 100 points, which sounds high but not too high. I find the 1,000 points amount when it is only worth $10 sounding unrealistic for a smaller outcome.

Using 10 cents per point as an example, if you gave an employee 100 points (the equivalent of $10), would that reward amount be reflective of the action they did?

That’s where a matrix grid allows you to define and determine the specific behaviors, actions, and outputs, and then match them up with an appropriate level of reward amounts.

Don’t compare employee point-reward levels with customer loyalty point-reward levels as they follow a completely different model or matrix set up.

9. Always qualify your performance activities so that they are aligned with your organizational values.

It is not just about completing the task and performing the right activities. They must always be done consistently with organizational and moral values. Behaviors and actions must be done for the right way for the right reasons and not for gaming more points.

Work with a vendor and help you out. But hopefully, this has given you some guidance to assist you.

10. Remember there is wonderful data in using points-reward programs for further analysis.

Use of employee point-rewards programs produces rich data that provides ample analysis opportunities.

By going beyond descriptive and diagnostic analysis you can move into the realm of predictive and prescriptive analytics and generate improved performance. Our points-based reward programs, coupled with social recognition programs, permit us to help out clients generate incredible ROI results. We can also correlate recognition and reward program results with key objectives and results from the company.

Hopefully, all this information helps you if you are considering a points-based reward program.

Reflective Question: Which factor most influences you to consider using a points-based rewards program?

Roy is no longer writing new content for this site (he has retired!), but you can subscribe to Engage2Excel’s blog as Engage2Excel will be taking Roy’s place writing about similar topics on employee recognition and retention, leadership and strategy.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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