Jurgen Appelo has given us his six rules for rewards in a recent posting. Here's an abridged version of his ideas:
Don’t promise rewards in advance. When acknowledgement of good work comes as a surprise, research says intrinsic motivation will not be undermined.
Keep anticipated rewards small. Why? Because the anticipation of a big reward is likely to decrease people’s performance.
Reward continuously, not once. Every day can be a day to celebrate something.
Reward publicly, not privately. A regular public reminder works better than an annual private one.
Reward behavior, not outcome. Outcomes can be reached by a shortcut, while behavior is about decent work and effort.
Reward peers, not subordinates. Peers often know better than managers which of their colleagues deserve a compliment.