"A good background is like a skirt. Short enough to keep my interest, but long enough to cover the important bits." -- Ertier
In general, giving a good DM a background for your character is its own reward (for reason #2, below, which should be standard practice for all good DMs), so I always come up with one when I play in somebody else's game, even if it isn't asked for or rewarded.
When I DM, I usually reward players who give me a background in two ways:
1.) A small lump sum of bonus experience to start them out. (Usually 100 to start out with; more if the background is good.)
2.) Your background gets worked into my plot. (You were cursed by Vecna as a child and your entire squad got wiped out by sahuagin? You bet your bippy you're going to see more sahuagin and cultists of Vecna than you can stand.)
I encountered a reference to DMs who also reward players for drawing/photoshopping pictures of their characters, which sounds like a splendid notion. On Vaxia, where I played for years, it's standard practice to provide pictures for every character - sometimes several. Certain characters had one for each mood they might happen to be in, for example. Maybe a couple for when they grow their hair long during winter...
Anyhow, as I was saying, to visualize a character and make them more real, it helps to have a picture of them in front of you. Now that I think of it, I would mandate this instead of simply rewarding it, but that would entail coming up with and printing pictures for each of the pre-generated characters I've come up with, and possibly some major NPCs as long as I'm at it. Which I might do anyway, now that it's occurred to me.
While I'm at it, I could also reward creating/painting a custom mini -- so long as it's roughly to scale with the rest of the minis; a LEGO minifig only works if your character is on the very large side of Medium. (I used a LEGO minifig for Ludgeblatt Curdlegut, my first character, with exactly that jusification.)
P.S. Here, have three generations of Maliös: