I reward for roleplaying, and, contrariwise to the first poster, I find that it does encourage people to roleplay. (And by "roleplay," I'm talking about the "amateur thespian immersive" style, which is my favorite way to play. I like to be able to tell when someone is speaking in-character, without hearing, "My character says ... " in front of everything.) I've found that once people realize the players who do dramatic stuff and stay in-character a lot and so forth tend to advance a session or two faster, consistently, they start emulating the behavior.
That said, I reward the sincere effort, not the accomplishment. I also allow other avenues for bonus XP, because there are some players who truly love the game, but who truly will never roleplay as I prefer it, whether out of shyness or whatever other reason.
In general, I total XP normally and award 80 percent of it. The other 20 percent is available for roleplaying or for other activities (like logging, illustrating, and so on). Typically I mentally rank everybody as the session progresses, starting everyone at "10" and raising or lowering them within the range of "1 to 20." The ending range is the bonus RP they will receive. (I.e., I have reserved 20 percent of the actual total. If they score "15" on the "Jeff RP-ometer," they'll end up with 95 percent of the total XP: 80+15.) I also lower the score when people egregiously break any RP mood that's been established ... we occasionally have serious problems with OOC humor at the expense of dramatics.
Note that this usually means I don't give out full XP for a session, which is fine with me ... I like slightly slower advancement. You can use the same system exactly, except with a base of 90 percent XP awarded, and achieve average advancement matching by-the-book.