I reward players who demonstrate quick thinking, an enjoyable social engagement during the game play, and when their characters overcome great obstacles by the slightest of margines.
To me, it's all about having a great gaming session, and rewarding characters with additional XP is something that players appreciate.
On the level of the character, I like games that use a momentum system, where if the character has a series of successes, they can unlock the use of a truly inspiring feat. Again, it is about having a great gaming experience and not, "Hey, the rules don't say you can cut three goblin heads off with one swing of your two-handed sword".