Creating an effective rewards program is no easy task. A lengthy article at Inc. addresses the concept from several angles. The first things you want to do with rewards are identify the types of activity you want to enforce, make sure the rewards work for your company, and of course motivate your employees with the rewards chosen. And yes, valuable yet inexpensive rewards do exist. You can reward employees in ways such as providing new opportunities or types of work in the organization, increasing their exposure to senior staff, granting schedule flexibility, and simply offering personal gratitude. Just remember not to let rewards become a popularity contest, and communicate well the criteria that will receive praise.
For a deeper discussion, you can read the full article here: http://www.inc.com/guides/2010/04/rewarding-employees-on-a-budget.html