Today’s economic challenges require organizations to find new ways to both reward top performers and to motivate all workers to improve performance and maintain or increase business value--and they need to do both as cost-effectively as possible. The traditional method of keeping and motivating workers to excel is through compensation and benefits. However, those are only two parts of an organization’s “Total Reward” package. In fact, organizations can reward their workers in many ways, including pay, benefits, improvements in work-life, incentives for pre-determined job performances--as well as various forms of recognition. According to WorldatWork, recognition can include both formal and informal programs and support business strategy by reinforcing certain behaviors (such as extraordinary accomplishments) that contribute to organizational success. Recognition should acknowledge employee contributions immediately after the fact and can be cash or non cash (such as verbal recognition, trophies, certificates, plaques, dinners, tickets).
Critical and Timely Questions
There are several reasons that drive individuals--whether employee, employer, tax payer, politician or reporter--to question the value or appropriateness of incentives or recognition:
- Definitions: Most people do not have a clear definition and/or understanding of an incentive or a recognition plan--or the difference between the two.
- Ineffective use of these organizational tools. Some organizations, and the responsible individual managers, do a poor job designing, implementing and managing these tools.
- The lack of reporting the value of these plans. Generally, only ineffective or plans with inappropriate outcomes are reported by the media.
It is for these reasons, as well as the need for a comprehensive review of the available data on the effectiveness of recognition programs, that the Human Capital Institute asked: What is the value of employee recognition? Which types of rewards are best used when providing recognition? How does one determine the Return on Investment (ROI) of employee recognition? In June 2009, HCI created a white paper addressing these critical and timely questions:
We found that recognition plays a key role in driving workforce productivity:
1. Recent studies by Gallup, the Corporate Leadership Council, Towers Perrin and others illustrate that recognition is highly correlated to improved employee engagement with both the employee’s work and the organization.
For example, in a large-scale 2004 study of employee engagement, the Corporate Leadership Council (CLC) found that only 11 percent of today’s workforce demonstrate a very strong commitment to their organization, while 13 percent are actively non-engaged--poor performers who put in the minimal amount of effort. In the middle lies the 76 percent of the workforce that is “up for grabs.” Elevating the engagement of both this great middle and the low performers increases discretionary effort and retention by as much as 20 percent for the former, and 87 percent for the later.
In addition, Gallup has found that only 29 percent of workers, as of their 2004 survey, were "engaged," while 54 percent were “not engaged” and 17 percent were "actively disengaged." Gallup estimates the cost of this disengagement to the national economy at $300 billion a year. In contrast, business units within organizations with higher-than-average levels of engagement find success at four distinct types of business outcomes:
- Productivity: Business units in the top quartile of all engagement responses have 50 percent higher success rates in comparison to those in the bottom 25 percent.
- Employee Turnover: Business units in the top quartile have a 13 percent higher success rate (fewer turnovers) in comparison to those in the bottom 25 percent.
- Profit: Business units in the top quartile have a 44 percent higher success rate than those in the bottom 25 percent.
- Customer Satisfaction: Business units in the top quartile have a 50 percent higher success rate than those in the bottom 25 percent.