This summer my boys got library cards and joined the reading program offered. It was a nice addition to something we were already doing at our house to encourage them to read. They could earn prizes and one library (we use both the city and county system) gave them bi-lingual books just for signing up.
Our reading program at home I set up with a dual purpose. I wanted them to get started on reading, 1, because reading is awesome, and 2, because my 5.5 year old just started Kindergarten. It's not pretty, but I made a chart where each boy could put stickers for his own work. (Just ignore those side boxes. They have nothing to do with reading. Those were for jobs they could do, mainly making their beds, to earn fun character t-shirts they picked out at the store.)
To try to create camaraderie, I made it so that each prize could not be given out until both boys had reached the goal mark. My hope was that this would help them to encourage each other. I think it worked.
If you notice on the chart, they could earn stickers for reading or doing a "learning game." The learning games are things I will have to go into detail more later, hopefully giving you some ideas of things that can help your child with reading that don't even involved looking at words. We used two different colors of stickers for the different method earned and they could only earn up to 2 stickers a day, even if they went beyond the 15 minutes.
There are tons of different beginner books and systems. Rachel has mentioned the BOB Books in her "Books and Reading" theme of the week. These are super basic and a great starter set. As your child gets better at reading, truthfully, they become a bit boring (for everyone, not just mom & dad) and the drawings are not the best.
Another set that I am sure you have heard of is from "Hooked on Phonics." I luckily happened to pick up the kindergarten set at the thrift store for about $1 for about 20 books. (Score!) These have also been nice. They have 2 books (1 standard and one "companion") for each sort of sound set you are working on, which is good to break up the monotony of working with the same words.
A freebie I got from my sister Natalie was a little packet they had left over at her daughter's school one year. They are based on the books you can read on Starfall.com (which Rachel has also mentioned a couple of times). My boys have really enjoyed them. Ours are the most flimsy of them all (they were cut-your-own and staple books), but now there are proper versions of them available online. Actually, our library had the nicer bigger versions of these too, so check your library. And that leads me to the last set I have had experience with.
These are my favorites. It is the Steck-Vaughan phonics readers. I checked them out at the library and renewed as many times as I could. They are still pretty simple, though not as basic as the sentences like "Sam sat." in the BOB books. They feel like real stories. I think they are meant to be used as sets at schools because when I tried to find my own to buy, all I could see were sets of like 35 of each individual book being sold.
Anyway, I just wanted to share sort of what we have done to encourage reading around here and what books we have liked for new readers. We would love to hear what methods and books you like and if we find other things that work for us, we will be sure to share.