Rewarding work

Providing the right incentive and recognition scheme is a top challenge for HR professionals. Tim Young looks at how the best companies are rewarding their top performers, and why getting recognition right is so important.

It used to be so easy. For our parents’ generation, a job-for-life, a long-service award and a pension might have been enough to ensure 40 years of productive service. These days it is a little different. Competition for the best talent has intensified, and once you find the right person, you have to keep them. According to the Department of Labor, in the 1950s the average employee stayed for 20 years in each role – in the 1990s it was less than five years.

It’s not just the expectations of staff that have changed. Jack Welch, legendary CEO of GE was an influential advocate of recruiting A-plus staff only. There was no point in trying to develop C staff into Bs, Welch argued; you should just get rid of them. The quid-pro-quo for A-rated staff was higher rewards through stock options and bonuses.

Many companies still embrace this approach with gusto; after all, it makes intuitive sense to reward your most talented and try to move on those not pulling their weight. It’s not a risk-free strategy though, and the danger is twofold. Unless you have robust, objective criteria for measuring performance, it can be easy to let personal bias affect decisions.

The more pervasive problem with the system though is that even if you can measure performance accurately, the effects such a system can have on your company culture can be counter-productive. Creating a culture where staff are constantly having to look after number one can lead to a feeling of disenfranchisement and distrust of senior management – who are perceived as also looking out for themselves.

In response, many companies are now taking a long, hard look at themselves and building structures in which staff feel a sense of participation in the goal of the company. Genentech CEO Art Levinson, whose company topped this year’s Fortune 100 Best Places to Work list, is on record as saying he actively screens out applicants who ask about job titles and options; what he wants are people who are driven to make drugs that fight cancer. So what options are available to try help build the motivated, engaged staff body that all companies need?

Happy staff, happy markets
“HR professionals have instinctively known for years that engaged, motivated employees work harder and smarter – which contributes directly to the company’s bottom line. There is growing empirical information that confirms these assumptions,” says Karen Renk, Executive Director of the Incentive Marketing Association. Renk cites a study from Northwestern University that shows a “direct link” between engaged employees and customer satisfaction and profitability – “even if the employees have no direct contact with customers.” Another study, from Ohio State, rated the morale in different companies as high, moderate or low, and studied stock market performance in 2002. Those companies in the high morale category out-earned their counterparts by almost 20 percent.

The strategic challenge, then, is to create high staff-morale – and the logical place to start is with compensation and benefit packages. There is no doubt that compensation is a key hygiene factor for any company. Crudely put, the job market is like any other – if you’re not paying the going rate for your staff then don’t be surprised when the market’s invisible hand picks up your brightest and best and takes them elsewhere.

What’s more, the work environment and facilities need to be up-to-date – workers struggling into an outdated office lacking modern (or even any) air conditioning aren’t going to do their best work in the summer months, for example. As Renk puts it: “In an environment where employee compensation is inadequate and where they lack the proper tools or equipment to perform their jobs effectively, an incentive program will not produce long-lasting results.”

A decade ago, during the stock-market boom of the 1990s, the trend was to offer a low basic wage with high value stock options. However, the limitations of this approach came to light when the stock market tailed off. People get used to a certain level of monetary progress and come to expect it; when that progress stops, it doesn’t motivate people to work harder and just antagonizes them.

Christi Gibson is Executive Director at the National Association for Employee Recognition (NAER). As she puts it: “Pay-checks are not reward enough for employees. If you give someone cash, they figure that’s compensation and they’re just going to keep it.” With this in mind, Gibson believes there’s no need to pay over the market rate: “Everything must be balanced. If you have the correct compensation and benefit package, compensation doesn’t have to go over and above what your competitors are offering.”

Benefit packages can also be considered a hygiene factor to some degree. If you are not offering some kind of pension or 401k savings plan and you’re not offering any kind of medical insurance, then you can be sure that your employees will complain about it at the water cooler. They will also probably be more inclined to leave. However, bring these benefits in and while appreciated they soon become normalized – it is unlikely that many people consider their future retirement income as a motivating factor when that tricky phone call or assignment is looming.

Building the right culture
It therefore seems that HR professionals need to concentrate on more than just rewarding people with money to motivate them. For Gibson, the number one priority is clear: companies need to align their recognition and reward schemes with their own mission and goals. “When employees feel they serve a purpose, and they’re being noticed for doing a good job, then they will embrace the mission, goals and values of the company and work to higher standards,” she says.

As a result, management needs to think about more creative ways of reinforcing positive behavior in their staff. However, there are several challenges. The first is to recognize that employee motivation is a strategic challenge for the business, and that any efforts to reward and recognize staff must come from the very top. “Reward programs must come from the CEO – if you have the CEO onboard everyone will connect with it and everyone will get onboard,” argues Gibson.

A good example of the CEO driving the culture of a business can be found at Valero (see boxout). Valero was third on the Fortune 100 best places to work list this year, and works hard to create a ‘let’s-get-it-done-together’ work ethic. Valero CEO Bill Greehy’s success at driving this culture was demonstrated following Hurricane Katrina last year. Eight days after the storm had hit, Valero had its New Orleans refinery up and running, and Greehy was seeking special permission to fly into the closed airport to visit. Not only was the refinery up and running a week before its competitor next door, but despite the chaos reigning in New Orleans at the time, 1400 Valero employees made the effort to come in for the traditional site barbecue, held whenever Greehy visits.

Demonstrable leadership can go a great way to showing staff that they work in a company in which everyone is swimming in the same direction. But it takes more than just a visible, enthusiastic CEO to keep people’s morale at an optimum level. To do this, the right culture needs to be embedded throughout all levels of the organization.

Just say thanks
This is where recognition schemes, both formal and informal, come in. As Karen Renk suggests: “An organization that provides a conducive environment can use properly planned and administered incentive programs to provide tangible recognition, improve employee attendance, encourage completion of training and improve productivity.”

A recent study, Awards Selection: Insights from Managers by the Forum for People Performance Management and Measurement, asked a sample of business what tactics they found were the most successful for motivating staff. The consensus was that non-cash benefits were more popular, with ‘employee recognition’ schemes coming out top. The study concluded it was a tactic that “works for most situations within most corporate cultures”.

In practice, these schemes can take a variety of guises. The most common tend to be long-service awards, on-the-spot performance tokens or employee of the month schemes. But of course there are a multitude of ways in which employees can be recognized for good performance by innovative employees. The NAER reports that its members have offered ice-cream socials, peer recognition programs and personalized letters from the CEO as ways of recognizing staff input.

Whatever particular scheme you develop, there are two golden rules; recognition must be personal and it must be timely. Christi Gibson explains: “Say you did some fabulous thing for the company in January, but you don’t hear a word until July when you get a thank-you note in the post or a pay-rise. It means nothing. You just figure you deserved that anyway.” In other words, if you are too ham-fisted about saying thanks to your people you can end up doing more harm than good.

Conversely, the company that is on the ball and offers genuine, on-the-spot gratitude can reap benefits far in excess of the cost of rewards. “If you do something over-and-above and receive on-the-spot recognition, you’re going to respond,” continues Gibson. “Even if it is just an e-mail from upper management saying thanks, or a small trinket – the right trinket given at the right time by the right person can be so meaningful. And it makes people loyal, and it makes them stay.”

The challenge here is making sure you’re giving the ‘right trinket’ at the ‘right time’, and this is where strategic commitment to recognition strategies can be so crucial. A good manager shouldn’t just be guessing at what makes their individual staff tick, but should know. One way of ensuring all managers can meet this challenge is to set recognition and staff morale as a strategic goal of the organization, regularly reinforcing with managers that the delivery of this strategic goal is part of their responsibilities, and supplying coaching and training for managers to help achieve this.

Horses for courses
Another key factor to consider when developing a recognition scheme is that the task and behavior you are trying to reinforce will affect which approach you should use. The Awards Selection report shows this clearly. The research showed that recognition schemes and non-cash awards tend to be better at reinforcing less tangible, morale-based outcomes such as creating a positive internal ‘buzz’ or improving teamwork. By contrast, for more short-term and tangible goals like increasing sales or improving product quality, cash awards have more of a role to play (see box).

Equally, managers must be alert to the challenges of rewarding teams. If you concentrate too much on individual rewards and most of your staff primarily works in teams, you risk alienating your honest foot soldiers, who in many cases are providing the support and foundations on which their colleagues can shine. On the other hand, if you concentrate exclusively on rewarding teams then you face the danger that free-riders can share in the success of their colleagues, with all the potential problems this brings for future team-working and trust. “It is important to have both individual and team awards,” says Christie Gibson. “Many times a team will make something work, but you should also be rewarding the person who first came up with the idea as well”.

Clear business goals
It is clear then that the modern business needs to be flexible in its approach to recognizing and motivating its staff. Relying on just one or two annual awards or bonuses is not going to promote the kind of corporate buy-in from staff that is so important to ensure success. For many companies, the cost of human capital through payroll expenses can be comfortably the biggest annual business cost, so it makes sense to try to optimize the marginal productivity of this asset.

Ultimately, what people want in their lives is a sense of purpose, and a sense of approval from their peers – after all, we’re social animals. For business to best utilize this need it is crucial to set your mission and goals and actively recognize and reward the behaviors that will get you to that goal. While this may require a strategic commitment on behalf of business, this commitment should pay dividends – not just in the area of staff retention and morale, but on your bottom line as well.