The Power of Recognition

Finally, there may be signs that the economy is growing some solid legs. In March, the Dow climbed to a record high, propelled by optimism over the anticipated recovering housing market and lower unemployment. If the trend of rising company earnings is any indication, the momentum is likely to continue. For employers, that means what it always has: an uptick in competition for the best talent.

At the same time, barely out of the recession, companies can’t yet afford to make huge investments in salary increases or large bonuses. By developing employee recognition programs, employers can improve—in some cases dramatically—employee engagement levels, retention and performance. “Employee recognition is a potentially very low-cost engagement driver that can have a very, very significant impact on financial performance,” says Ken Oehler, global practice leader of engagement at human resources consultancy, AON Hewitt.

Oehler recently studied the relationship between recognition and engagement and found evidence of a strong connection. For starters, when employees were asked to name their top drivers of engagement, recognition came in at No. 2, well ahead of pay at No. 5. Aon also looked at the lag effect of engagement to sales growth and found that companies with above-average engagement scores correlated with 19 percent sales growth vs. companies below the norm on engagement, which reported only 6 percent sales growth.

And yet, the majority of companies don’t measure engagement or ROI on those programs, according to Eric Mosely, CEO of Globoforce, which designs social recognition programs and coauthored a study with the Society for Human Resources Professionals to measure the correlation between engagement and performance. “If it’s very informal and just about people giving gift cards, there’s no way to track the spend or get insights from mining the data,” says Mosely. The SHRM/Globoforce Employee Recognition Survey found that 42 percent of companies tracked engagement; but of those that did, the second most popular method was via employee exit interview. Although 80 percent of companies did have employee recognition programs—or plans to implement within 12 months—only 15 percent actually tracked return on investment for those programs.

Mosely notes that the stats point to a clear line between recognition and a variety of positive indicators: The companies that spent 1 percent or more of payroll on employee recognition programs saw an 85 percent positive impact on employee engagement and 59 percent saw a positive impact on financial results. Furthermore, six in 10 also said their recognition programs were helping with retention. “That means small, incremental performance at the individual, human level aggregates to improved company performance.”

There is no one-size-fits-all plan for recognition, but there are some best practices, including adopting a formal program that focuses on specific behaviors or outcomes, ideally tied back to the company’s core values, which uses peer-to-peer recognition rather than a top-down-only approach. Here are five best practices in action.

1. Make it easy to use.

From Paul Miller’s perspective, the need for recognition in the tech industry was even more important during the recession. “People were and still are putting in a ton of hours. It really needs to be more than the paycheck,” says the CEO of UBM Technology, which delivers business information, events, media, training, marketing and data services to the technology industry. Miller realized three years ago that he needed to get serious about a methodology for keeping employees happy and engaged, so he and his senior vice president for people and culture, Harris Grayman, began working on a technology-based recognition solution that capitalized on the social media tools they saw taking off in popular culture. The program, which rewards top performers, is called “The LOOT Awards,” or “The LOOTies,” for short, and stands for the “League of Overachieving Talent.” It uses an interface much like Facebook and employees at any level and in all divisions of the company can initiate recognition for any other employee in a public forum. Those awarded accumulate “Powerful Performance Points” that they can then trade in for a variety of rewards.

Although Miller admits that he hasn’t been able to draw the direct line directly from recognition to retention, he has seen some less tangible but equally important changes. For example, UBM Technology had previously struggled with being a siloed organization, with groups acting independently of one another. Since the LOOT program began, Miller has noticed employees rewarding colleagues in different parts of the organization frequently. The company has also seen a significant uptick in scores around recognition and respect on the annual employee engagement survey, which they compare not only to previous year’s scores but also to 60,000 other companies’ scores. They measure how many rewards are being given, as well as how active or passive employees are in giving them and reading the results. “To simply measure nothing because it’s a lot of intangible stuff, for me that would make it difficult to justify the investment,” he says, adding that the program also lets him see which of his high performers are winning the loyalty of their colleagues and showing real leadership potential.