Before getting into the discussion, let us understand these two terminologies:
It's an honor (such as a medal or trophy) that is conferred for merit, usually after a decision made by a committee of judges.
It's something given in return for a person's service, merit, hardship, etc.
I got very limited opportunity to work in traditional management environment but was able to understand the fundamental behind this called 'Rewards'. It may come to an employee in a different way even as a small cookie for "being good." Rewards gives a boost to the individual who got that, and creates a competitive environment within the organization and team. Definitely it's a good in 1st side that people are trying to improve due to this competition, but dark side is that people will start hiding the facts/knowledge, stop sharing the knowledge/ information within organization/ team to ensure that they stand better.
In-spite of that in Agile based organization 'Reward' is purely absent and 'Award' is commonly getting used. In agile based organization/ team they are motivated enough to share the knowledge and information to make the product better. Generally team should get awarded with trophy or medal for best team or so considering that team has completed all committed story-points and positive customer feedback in product review meetings. This gives a boost to the entire team and they are more united and focused for their goal. Even if 'Award' is given to an Individual like 'Best Contributor' considering that if an individual is completing highest story-points consistently, is not advicable and I really discourage this kind of 'Award'.
We can consider an 'Award' like Most-Valuable-Pair considering that team is using XP practices like Pair programming. This gives a positive signal within team to be a smarter pair and as we know XP advocates about different set of pairing so the whole team will improve and since they will do pairing they will grow together. I would like to add that this kind of 'Award' should get added only when team is enough matured in Agility otherwise negative outcome may come as in Traditional management approach.
Now, a question comes in my mind that -
In Agile environment how to recognize an individual as the product's success and failure belongs to the entire team?
Certainly there are individuals who are performing better than other team member, how to appreciate them, how to make sure that those individuals get promotion?
Let me try to answer these questions. I am totally agreed that these individuals must be appreciated in term of better compensation and may be in term of promotion. As we know that there is no Project Manager role in Agile and except team no one knows that how good an individual is performing so Management who is responsible for performance appraisal must get the 360 degree feedback from the team not annually but regularly. There is a dark side of this kind of feedback which is -
'You give me a good review and I'll give you a good one, or You gave me a bad review last time, so I'll give bad review to you this time'.
Now question comes that how to avoid this, we can ask team to rate every individuals in different area may be in scale of 10 with justification what they are giving to others, now suppose we have 7 team member so maximum points would be 60 for any individual. Now we can consider top 2 individuals if hey have at least greater than 30 points otherwise either general or no appraisal.
Probably this may help the agile team stay united and self organized.