The Return on Recognition in a Recession

By Derek Irvine, Chief Marketing Officer and Vice President of Global Strategy, Globoforce

The declining state of the global economy, layoffs, bankruptcies, the credit crunch—the headlines are impossible to ignore. Companies across industries and around the world are dealing with similar complex challenges due to the ailing economy. Now is not the time for employees to give in to fear and not work as hard because they believe they will not be recognized for their efforts. But how do company leaders address these employee concerns while remaining fiscally responsible, encouraging greater productivity and sustaining growth?

Strategic employee recognition programs reaffirm employees in the value of their contributions, acknowledge the additional work and effort they are being asked to perform, and allay rumors through frequently updated executive messages. Human Resources leaders can actually deliver savings to the bottom line through a properly deployed strategic recognition program while simultaneously boosting morale and productivity. As Judy Bardwick said in Psychological Recession, “Chronically fearful people are too exhausted to be creative and innovative. They expect the worst to happen, so they see no reason to give their all.”

Power of Recognition in a Recession

“Recognition helps people to be resilient. Businesses right now...they’re trying to survive. And to survive you’ve got to have some psychological resilience. You’ve got to have employees who are positive despite the negative situations around them....I would argue that recognition is even more important in times like this.” – Jim Harter, Gallup, October 2008

News articles and research studies from firms including Gallup, Deloitte, Towers Perrin and many others confirm three common issues among employees in this recessionary economy:

1) Survivor’s guilt – Those remaining on the payroll after a round of layoffs often feel guilty about surviving the ax. This guilt distracts them from the task at hand. These employees typically need additional reinforcement of the value of their work to help them justify their status in the group.
2) More work, less motivation – The survivors are also paying close attention to how management handles the layoff and subsequent redistribution of the work. With more tasks on each employee’s desk, managers need a way to encourage strong individual performance while reinforcing priorities based on ultimate corporate strategic objectives.
3) Rampant rumor mill – The inevitable rumors of additional layoffs or restructuring further contributes to productivity and motivation challenges. Teams often suffer the most with rumors fueling backstabbing and protection of individual tasks over team goals.

A recessionary economy is precisely when companies need to get the most productivity out of fewer employees, however. Company leaders are struggling with how to accomplish this when annual or performance bonuses and even pay increases are no longer in the budget.

Roughly half of the HR executives from several hundred firms who responded to a Society for Human Resources Management (SHRM) November 2008 survey reported wage freezes and bonuses cuts were likely in response to the downturn. A similar study by Towers Perrin found nearly half of the 450 companies surveyed are likely to cut spending on pay and merit increases while 39 percent plan to cut annual bonuses and other cash incentives.

At a fraction of the cost of cash compensation and bonuses, strategic recognition targets each of these challenges with mechanisms to acknowledge and reward performance, personal achievement, and team successes. The recognition program should also be used to reiterate core company messages such as key goals and the mission to keep staff focused on achievable targets. By using the tool to encourage team members in a stressful time, company leaders communicate clearly their commitment to the wellbeing and future of the employees. Deployed correctly, strategic recognition programs also become a scorecard for executives on increased productivity and the factors that are specifically driving that increase.

“We’ve seen the tremendous value ongoing recognition has brought to our organization in terms of creating a more engaged and motivated workforce united around our company’s core values. We firmly believe that expanding our effort with Globoforce – particularly during this recessionary economy – will serve to strengthen our positive corporate culture and provide the necessary ‘thank yous’ that employees need now more than ever.” - Susan McGowan, Associate Director of Benefits, Biogen Idec

Savings through Proper Program Deployment
Most companies are already investing significantly in an incentive or recognition program of some sort, but the majority of those programs are disparate, unfocused and do not deliver the full return on investment possible with strategic recognition.

Simply by consolidating multiple disparate programs into one and implementing efficient global administration, companies are able to achieve tremendous savings on their current investment in recognition. Globoforce’s strategic recognition programs take the buried and distributed budget of multiple legacy initiatives, consolidate it into a single global program, track it, and provide executives with reports on the value of the program across the corporation.

These strategic recognition programs reduce the budget spent on recognition through a Zero Budget Impact and Net Cost Savings structure. This is possible by consolidating the various overhead expenses of multiple programs and implementing features to more effectively invest the budget allocated to recognition. Now executives can track spend in all divisions and groups and compare to the results achieved in terms of productivity, demonstration of corporate values, and achievement of strategic objectives.

Strategic employee recognition ensures:
• Budget spend is primarily invested in employees and not on multiple local administrators.
• Fully automated and integrated processes reduce the costs associated with data entry and errors.
• Cost savings and program enforcement through global corporate governance, tax compliance, and program measurement and management.

The Problem with Cash-based Incentives
With the cash bonus and annual compensation increase pool drying up and employees on a cash incentive performance track no longer able to meet those performance goals, many employees are choosing to not work as hard because their goals (and accompanying incentives) are out of reach. Yet many companies continue to rely on cash-based recognition programs, which neither maintain program consistency on a global scale nor ensure local participants feel motivated and involved in the organization. Additionally, people become habituated to cash no matter how much you give them, viewing it as an entitlement. An August 2008 study found that in eight of nine tasks, the promise of a bigger bonus actually significantly decreased people’s performance.

Multiple studies have proven that simple recognition delivers better results than cash. A Japanese National Institute for Physiological Sciences study found “paying people a compliment appears to activate the same reward center in the brain as paying them cash.” White Water Strategies found acknowledging staff achievements – praising employees – had the same impact on job satisfaction as a 1% increase in pay, which would equal £5.2 billion for UK businesses alone. These 2008 studies reinforced research results from a 2004 University of Chicago study that found non-cash incentives were 24% more powerful at boosting performance than cash incentives.

Non-cash recognition programs save money by reducing manual intervention and eliminating the paper chase while also creating a positive work environment where employees see that best practices, strong ethics and exceptional performance are recognized and rewarded consistently, openly and fairly – an environment that encourages loyalty, commitment and honesty of effort. It is this kind of environment that drives greater morale and productivity when company leaders need it most.

Strategic recognition programs:
• Drive productivity and morale by giving far more frequent awards to far more employees.
• Use non-cash recognition, which produces twice the performance boost as cash.
• Offer a hard, predictable budget to manage against.
• Become a scorecard for executives on increased productivity

“As companies tighten their belts during tough times, it’s important to remember that money isn’t always what matters most to employees. When it comes to encouraging employees to pour discretionary effort into their work, the chance to make a difference and be recognized for their contributions can provide a much stronger incentive. Unfortunately, only 49% of non-management employees report that their contributions are recognized by their company when they perform well.” – Hay Group Insight, September 2008

The Problem with Merchandise Rewards
During the 20th century, many companies added a catalog-based merchandise rewards program to their cash bonus plans. However, this century old method offers no bottom-line savings on recognition budgets. These programs typically include 30% markup on their products with unpredictable and very costly shipping, handling, customs and duties fees. These programs deliver even less on a global scale where companies tend to spend 10-40% more on awards to employees in countries with a lower standard of living, inequitably awarding them more than their colleagues and certainly more than was intended.

Gift-card based strategic recognition programs give reward recipients the key to countless shopping, dining, entertainment and travel adventures. With set shipping fees, the gift-card model also frees human resources managers from tracking global shipping fees, customs and duties laws while giving them a hard, predictable budget to show to senior executives.

Gift-card based strategic recognition offers:
• Guaranteed minimal shipping fee everywhere in the world.
• No international customs or duties fees.
• Built-in standard of living index to save, on average, 25% of recognition budget.
• Increased reward value for recipients through option to shop at sales at more than 2,000 merchants worldwide.

“With previous reward programs at Dow, we experienced problems shipping merchandise internationally. Other employee recognition vendors tried to convince us to ship merchandise again, but couldn’t convince us that merchandise works internationally. Likewise, cash doesn’t have the same impact in terms of making the recognition memorable. We have found that our employees enjoy the shopping experience and Globoforce’s wide range of reward options allows them to select something from a merchant that fits their interests no matter where they are in the world. It’s a wonderful solution that works seamlessly across our international operation and we couldn’t be more pleased with the program.” – Sylvia Kronwald, Recognition@Dow Program Manager, Global Compensation and Benefits, The Dow Chemical Company

Benefits of Strategic Recognition in a Recession
Companies who implement a strategic recognition program in a recession can boost morale, increase productivity, realize savings and gain competitive advantage.

Boost Morale
Strategic employee recognition programs reaffirm employees in the value of their contributions, acknowledge the additional work and effort they are being asked to perform, and allay rumors through frequently updated executive messages. By using the tool to frequently recognize and encourage team members in a stressful time, company leaders communicate clearly their commitment to the wellbeing and future of the employees.

Increase Productivity
Strategic recognition acknowledges and rewards individual performance, personal achievement, and team successes. By tying every recognition to a company value demonstrated or strategic objective contributed to, employees begin to see how their efforts directly impact company success, giving them meaning and purpose. This recognition reinforces and increases repetition of precisely those actions and efforts the company needs from employees to succeed. Deployed correctly, strategic recognition programs also become a scorecard for executives on increased productivity and what factors are specifically driving that increase.

Realize Savings
Consolidating multiple disparate programs into one comprehensive, compliant and governable program saves 50-70% of a company’s current investment in tactical recognition and incentive efforts. Company leaders also realize cost savings through global corporate program governance, tax compliance, and program measurement and management. Studies show non-cash recognition produces twice the performance boost as cash with praising employees – saying thank you – equal to a 1 percent increase in pay.

Gain Competitive Advantage
Companies implementing a strategic employee recognition program during recessionary times position themselves to outperform the competition today and when the economy turns. Perform at a higher level today and rebound quickly in the upturn by having the right people in the right jobs and by fostering a culture of appreciation key talent will want to be part of over the long term. Partner with the CFO to deliver program savings and increase productivity by creating a marked difference in the morale and focus of your employees over the competition.