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The Problem With Points-Based Rewards Systems
Kevin Yip
April 23, 2018

One of the most common questions I hear from HR teams early in conversations is, “Do you allow people to recognize each other with points?”. I reply “No we don’t” then explain why Blueboard isn’t a points-based system.

In today’s digitally-charged workplaces, points-based reward systems have become the default solution for recognition programs that often get classified as a “checklist item”. The simple existence of a recognition program satisfies many organizations.

Before regressing to the default solution, HR leadership should assess the merits of such programs. Here are my thoughts after 4 years of exclusively working on improving recognition programs, and thousands of conversations around the subject.

What is a points-based reward system?

Let’s start with the basics: employee recognition is when a peer, manager, or company wants to say “thank you” to an employee. Frequently, this type of recognition is tied to a reward — which can come in many forms like cash, gift cards, experiences, or points.

A points-based reward system works by allowing a sender to give points to a recipient, which are tied to an obscured, specific dollar value on the backend. It depends on how an organization decides to structure its system, but these points can usually be redeemed for merchandise, gift cards, or travel incentives from a rewards catalog.

While this may initially sound like an effective system, the inherent use of points leads to many problems with delivering impactful recognition. This is further reflected by the fact that, despite over $90B being spent on non-cash employee rewards in the U.S. every year (which includes everything from travel to gift cards to points-based systems), Bersin by Deloitte found in a study that 87% of incentives investments have zero impact on organizational goals — including employee engagement, performance, and retention rates. Let’s take a closer look at points-based reward systems, and explore why this may be the case.

What do points-based reward systems accomplish?

First, it’s important to acknowledge the strengths of a points-based reward system. There are a few reasons why this approach to recognition may be a good fit for your company, especially if your organization is strapped for resources and budget.

#1 - Low maintenance

Points-based rewards may be a convenient choice if you’re looking for a low-maintenance recognition program. Since the system is centralized in one digital platform, it’s easy for your HR team to enable managers or peers to give points at their convenience, have controls in place for quantities of points distributed, and track who is giving and receiving points — all in the same place.

#2 - High frequency

Another merit of a points-based reward program is that they give you the flexibility to reward in a larger range of dollar increments. For instance, if your company has a limited monthly budget to dedicate to a recognition program, a points-based reward system lets you dole out smaller dollar amounts more frequently. This creates more recognition touch points with employees without having to break the bank.

But where do points-based rewards miss the mark?

If your company has the time and budget to dedicate to a more comprehensive recognition program, you might choose to look beyond a points-based system. The problem with this type of program is that it doesn’t actually deliver an impactful, sustainable solution. Here are a few cons to consider when it comes to points-based programs:

#1 - Points don’t establish a clear tie between the achievement and the reward.

When the employee is rewarded in small point increments, it takes a significant amount of time to build up enough points to actually choose a meaningful reward from the catalog. Let’s say an employee receives 20 points every time he or she does something positive at work, but the desired reward isn’t available until 300 points — this forces the employee to wait to accumulate enough before they can actually redeem their reward.

When this occurs, it’s difficult to tie the specific behavior the employee received points for to the recognition moment, because the process for receiving the reward was drawn out over such a long period of time. What you want is to have a recognition program that easily and swiftly connects the recognition moment with the reward, as well as a clear tie to the behaviors demonstrated, which leads to increased performance output and workforce engagement.

#2 - Your investment gets backlogged.

As mentioned before, with points-based platforms, employees will frequently hoard points to save for larger rewards, which can take place over a long period of time. During this process, one of two things tends to happen:

1.) When the points are finally redeemed, it’s for a sub-par gift like a $50 gift card to Starbucks, which can be a huge letdown. On top of the snooze factor, Consumer Reports shared that almost one in three gift cards will never get used. This is mainly due to people forgetting or losing their cards or leaving a portion of the balance on the card after an initial purchase. As a result, there has been more than $21 billion in cumulative unused card value since the start of 2008.

2.) Employees end up forgetting about the points they were saving. As a result, millions of dollars worth of points end up not being redeemed, which ends up being a waste of benefits funds. This makes utilization reporting a nightmare and can deflate the overall excitement of your program internally — when rolling out new initiatives, you want employees buzzing about the rewards and what they selected, which won’t happen if points sit around collecting dust.

#3 - They promote a transactional relationship.

Should recognition feel like compensation, or should it feel like a “thank you”? I believe in the latter. Unfortunately, points can end up feeling transactional and disingenuous as they’re just a form of currency that represents a dollar value.

The problem with transactional rewards is that they solely fire up the left side of the brain, triggering feelings of security and guilt if not spent toward “necessary” items (food, shelter, debts). Not to mention that Capgemini Consulting found that while 97% of loyalty programs rely on transactional rewards, and 77% of transaction-based programs fail in the first two years.

Still on the fence?

To be an informed buyer, I encourage you to investigate different forms of recognition and reward systems for your employees. Regardless of the direction you go (points-based programs, experiential rewards, or an in-house solution), your recognition efforts should be authentic and meaningful to produce the best results. Here’s why:  

  1. Happier employees equal more productive employees. It’s no secret that happier employees produce better work. Which means happy employees lead to more satisfied customers, which leads to revenue growth, and opens up additional resources to invest back in your employees.

Bersin by Deloitte found that organizations with sophisticated recognition practices in place are 12 times more likely to have strong business outcomes. Create a meaningful recognition program, and it will end up paying for itself.

  1. Employer brand matters. In competitive industries where talent is scarce, each employee is extremely valuable to the company as your brand voice and external champion. To stand out from other hiring organizations, it’s crucial to have a strong employer brand because the candidate's perception of your business just might be the final factor for a candidate with multiple offers.

Great recognition programs build excitement and buzz, and they can build evangelists within the company to further spread the word in an authentic way. That’s why so many people turn to resources like Glassdoor to learn more about a company’s culture. Imagine having an employee leave a review where she raves about the time she was rewarded with aerobatic flight lessons — a memorable, personal, and shareable experience that is more likely to attract the attention of other qualified candidates.

  1. Decisions are necessary to excel as a company. I understand changing up your recognition efforts is a big decision to make. But if you want to break away from the status quo and attract great talent, you need to actively make the decision to invest in your people. Having the same ineffective program in place year after year hurts your ability to attract, motivate, and retain top talent. The longer you sit on the decision, the longer your team suffers from the negative effects of doing nothing.

In closing

At the end of the day, a company has to choose an employee recognition and reward system that best suits their needs and is an authentic reflection of their culture and values. I challenge you to look past convenience and ask you to consider what type of program will truly be impactful and give your employees the rewards they deserve.

If you’re an HR manager who’s interested in making the jump to a different kind of recognition program, our experiential rewards offering might be a good fit. We’re all about helping you recognize employees with their choice from hundreds of experiential rewards, making recognition exciting, personalized, and built for scale.  

I would love to hear about your experiences with points-based reward systems, whether they were positive or negative. Please feel free to share your ideas with us in the comments section below, or reach out to me on LinkedIn.

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