Primer: Battling the High Cost of Employee Disengagement

I’m proud to say the June issue of Incentive magazine included an article I authored on overcoming employee disengagement with strategic recognition.

I discuss in the article how recognition has evolved during the last decade from tactical incentives programs that are poorly tracked and measured to modern strategic initiatives with defined objectives and clear metrics for success for solid ROI.

I also offer tips on how to launch a strategic recognition program and then how to evaluate the program’s effectiveness over time. I encourage you to read the article. Please give me your feedback as well.

High “Touch” Beats High Tech in Performance Management

Benefits & Compensation Solutions Magazine recently published stats and data on performance management, finding the tools and programs are typically not meeting their goals.

The article cites Towers Perrin: “This focus on high tech over what we call high touch could explain why just 43% of the respondents said their performance management program was only somewhat or not at all effective.” Indeed, technology can be an effective enabler of performance management – as it is with recognition – but any time a manager abdicates the importance of human interpersonal contact to technology, then the relationship with the employee will suffer.

Another study cited in the article found fault with pay for performance programs that were not applied equitably at all levels or simply did not communicate the factors impacting their pay package. We have also found this to be true with recognition. Most employees only see cash compensation (salary), benefits and perhaps equity reflected in their pay statements. The important investment companies make in employee recognition is left out. A key feature of an effective strategic recognition program is giving HR a way to easily communicate total rewards to all employees, individually – usually as line items in a pay statement but perhaps more visually as a pie chart with recognition as one of the wedges.

The article concludes, “To get more from their performance management programs, employers need to implement more human interaction so that employees understand how their contributions affect the company’s overall performance.” A strategic recognition program can also enhance these efforts by ensuring all recognized behaviors or actions are linked to the company values or goals to ensure reward recipients understand not only understand their efforts are appreciated, but also how those efforts directly impact the success of the company.

Using Strategic Recognition to Reengage Employees during Stressful Times

As employees worry more about keeping their jobs, their ability to focus on the job at hand tends to slip. These five critical steps can help you reengage your employees in their daily activities and boost company performance during distressing economic times.

1) See your employees as people and assets, not costs.
Your employees are people first -- and also assets and stakeholders in the success of the company. By engaging them fully in their work, leadership can help them be more fulfilled in their daily efforts, which drives additional value to the company. Clearly define employee-specific roles and expectations that are tied to overall department, division or company goals and you will see additional bottom-line results from their efforts.

2) Let your employees know they and their work make a difference.
Communicate the value employees bring through a strategic recognition program explicitly linking company values and goals to the employee behaviors and actions being recognized. Frequent and appropriate recognition helps employees see how their effort is delivering on company goals and mirroring company values.

3) Counter employee confusion and discontent over actions such as layoffs or reorganizations with constant communication.
Keep all employees engaged in daily efforts by communicating the reality of the situation, but with a tone of hope. Communicating the objectives and vision of a company during a downturn can provide a sense of security. Make your commitment to your employees clear by keeping a strategic recognition program in place and running smoothly, rewarding them for actions aligned with the objectives and vision.

4) Boost performance through recognition when merit increases become cost prohibitive.
Consistent, appropriate and frequent recognition encourages employees to perform at a higher level. After reducing annual increases to the minimum, companies can reinforce the psychological contract with employees with a well considered recognition program. Such a program feeds an employee’s need for Psychic Income™, which is the additional value they derive from increased social acceptance, self-esteem and self realization.

5) Optimize strategy execution through reinforcement of effective implementation steps.
A tough economy removes the cushion companies have become accustomed to in times of growth. There is no longer any margin for error or delay in executing on a company’s strategic objectives. A recognition program based on the company’s strategy helps employees clearly understand the goals and encourages and rewards them for effective implementation.

What steps are you taking to counteract the fears your employees may be experiencing in today’s slowing market?

Power of Recognition to Overcome Recession Fears

As the news about the state of the economy continues in a negative tone, employees around the world are becoming more concerned about job security as employers look to cut expenses while maintaining performance. But these fears and cuts begin a cycle of fear and discontent that will be challenging to overcome once the economy begins to improve. In the recent article “Psychological Recession,” author Judith M. Bardwick defines the term as “an emotional state in which people feel extremely vulnerable and afraid for their futures.” She goes on to explain the effect, “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.”

An ailing economy exacerbates these feelings, resulting in a greater percentage of disengaged employees than during times of plenty. Towers Perrin reported in their 2007-2008 global workforce study that almost four out of five workers are not performing at their optimal level, with two out of five “checked out.” The impact on company performance is substantial. Companies with high employee engagement show a 19.2% increase in operating income while low-engagement companies show of drop of 32.7%. With a potential 50% differential on operating income on the line, engaging employees becomes critical for company success – especially when a company is struggling for margins during an economic downturn.

Today’s savvy employee knows no job is guaranteed, especially when the economy turns sour. However, many companies are reporting that simply making reductions in force is not a viable option. After cutting resources deeply during the last downturn, human resources leaders are now positioning themselves more strategically to ensure the company has the right people in the right jobs when the market turns.

This strategy will help the company rebound more quickly than those that did a less considered layoff. Employees have long memories. Those who make it through layoffs are often the most talented high performers companies want to keep. However, once the market recovers, those employees will remember how the company treated them and their less fortunate colleagues and may be the first to consider leaving for a more appreciative work culture.

Aligning Business and HR Executives for Strategic Advantage

Deloitte and The Economist Intelligence Unit issued a report a year ago titled “Aligned at the Top: How business and HR executives view today’s most significant people challenges – and what they’re doing about it.” Much of this report confirms similar findings in our recent research on Bridging the Gap between Finance and Talent Management.

The global survey of more than 500 HR and non-HR executives from 470 companies in every corner of the world found 85% of all surveyed executives consider people “vital” to every aspect of company performance. But only 23% of business executives believe HR currently plays a crucial role in strategy formulation and operational results.

This aligns with the findings from our study in which our first key finding was HR must take a more strategic role in the business. In fact, 87% of our respondents said HR should play a more strategic role than in the past.

But senior business executives relegate HR to administrative functions, believing “strategic people agenda issues” such as talent management, productivity, and leadership development are being managed elsewhere. Indeed, along with a high performance culture, these are identified as the most critical for both groups of executives. This too aligns with our research’s second key finding showing 99% of respondents agreeing employee engagement increases both retention and productivity.

The Deloitte study found: “Whilst values and cultural attitudes provide a foundation for employee engagement, to drive performance and results there must be a clear link between executable strategy and behaviour. Achieving this link is a top priority, and in most cases the CEO – not HR – appears to be leading the charge.”

I couldn’t agree more. CEOs and their executive teams invest a great deal of time and effort in creating the company values and the strategy. But to infuse those values into the culture and inspire behaviors to drive the strategy, a global program for recognition must be in place. A strategic tool such as the Globoforce platform ensures the values and behaviors the company desires are frequently recognized and rewarded in a way that allows the leadership team to track where and how those values are being adopted. This deep insight into values adoption allows leadership to manipulate the culture by addressing areas where certain values or behaviors may not be rewarded as frequently as desired and re-educate or train on those specific areas.

While it is clear from our own and Deloitte’s research that HR and business executives are not working together as they should on strategic issues, it is encouraging to know that this gap is at least now being recognized and addressed.

Does such a gap exist in your own organization? Is your HR group engaged at a strategic level or relegated to the administrative roles?

Bridging the Gap between Finance and Talent Management

Globoforce released today the results of our research study of the importance of bridging the gap between the Finance and Human Resource functions to large, global organizations. We uncovered five key findings – all illustrating the clear need for more consistent collaboration between Finance and HR, specifically with the emerging role of Chief Talent Officer (CTO) as the next vanguard of corporate governance.

1. Human Resources Must Take a More Strategic Role in the Business
The role of HR has evolved, and in today’s business climate, HR is not only expected to take a more strategic position, but also to quantify work with appropriate metrics and substantiate ROI. The study revealed that although 87 percent of respondents believe that HR should play a more strategic role than in the past, only 63 percent believe HR has the right amount of input in the company’s strategic direction

2. Employee Recognition Drives Engagement and Therefore Impacts Recognition, Retention, Productivity and the Bottom Line
Engaged employees are more likely to be high performing employees who are less likely to leave their organization. Respondents were near unanimous (99 percent) when agreeing that they believed that employee recognition improves engagement and productivity.

3. Creating a Universal Recognition Platform for Global Companies Is Difficult
The majority of respondents (80 percent) believe that addressing the needs of global employees is difficult. Only 66 percent indicated they have a universal platform for recognition.

4. CFOs Are Not Aware of How Much They Are Spending on Recognition Programs
Although nearly everyone agreed that HR and Finance need to be on the same page, only 58 percent of respondents say this is the case in their organization. Even though best practice suggests that Finance is the business unit that should require ROI, few survey respondents (36 percent) indicated that Finance was taking a leading role in HR processes, programs and technologies.

5. The CTO and the CFO Must Work Together to Chart the Course for the Future
Survey respondents overwhelming said (95 percent) the CTO and CFO should work together to chart a new for the future. However, a disconnect clearly exists when only 58 percent said this was currently the case in their organization.

Check out the detailed white paper on our website for more results from the survey and our proven best practices for success.

Strategic Recognition and the “Economics of Humanity”

The Forum for People Performance Management and Measurement (FPPMM) issued a summary white paper on “The Economics of Humanity in Business.” Considering factors such as the Brookings Institutes' assessment that 85% of a company’s expenses may be related to the intangible capital in its people and the challenge posed by the fact that people are no longer willing to accept unpleasant work for a good salary, companies need to adjust to this “pull economy” in employee management and optimization.

One new opportunity FPPMM identified is in performance evaluation:

"Creating an effective evaluation and recognition program that seeks feedback from everyone involved is essential. Some of the more successful programs link individual goals with overall business objectives, … involving employees in recognition programs and events. To assure employees understand and improve organizational performance, employee evaluations and measurements must integrate goals for the organization’s strategy and success. Many companies find it difficult to quantitatively evaluate employee performance because of the difficulty in linking employee behaviors to organizational performance. However, a company that uses the appropriate measurement tools will have a definite advantage over its competitors on many levels, including profits, customer satisfaction, and employee retention."
Globoforce’s innovative method of linking all recognition and rewards to company values and strategy provide precisely this measurement tool that can lead to business advantage. Not only does this method provide a direct link between employee behaviors/performance and reward, but it also effectively and constantly communicates the company strategy and values throughout the organization.

The FPPMM report goes on to say, “Well-designed programs connect to an employee’s personal goals, career objectives, and lifestyle requirements, and, most importantly, to organizational objectives.”

I couldn’t agree more. What about you? Do you have any kind of employee recognition program in place? Is it truly strategic in that it reinforces organizational objectives?

Employee Lifetime Value – Elevating Employees from a “Cost” to a “Value”

The Forum for People Performance Management recently issued a new white paper on Employee Lifetime Value that attempts to apply the quantification principles of customer lifetime value to employees. The paper draws a few interesting conclusions.

For example, because organizations have long viewed employees as a cost, they have not seen the value in analyzing information on employee contributions to company performance. But, since a Brookings Institute study found that “nearly 85% of a company’s assets are related to intangible capital tied up in knowledge and human talent,” companies are finding it worthwhile to apply the effort to make that capital tangible. One tool to do so is applying the principles of Customer Life Time Value metrics to employees.

The benefits include linking employee lifetime value metrics to HR systems to determine how to most effectively choose which employees are deserving of investment in training, workplace opportunities and even rewards. While I appreciate the thought behind this, an effective method of doing so has already been in place at numerous world-leading companies – using strategic recognition to acknowledge the efforts of 80-90% of employees based on the already-established company values. When planned correctly, these efforts are also measurable.

I am more appreciative of the assertion: “interventions that alter lifetime value.” This construct recognizes employee (or customer) lifetime value can be influenced by proactive management interventions such as training or rewards for employees. Research abounds showing the effect of a simple “thank you” and praise for efforts on employee’s loyalty and continuing efforts on behalf of a company, increasing performance.

I applaud the researches for trying to quantify that which has not yet been quantifiable. But I question if efforts to measure employee engagement may be more effective in the short and long-term for companies in an environment for worker loyalty is considered a lost ideal.

Southwest vs. American: Happy Employees = Happy Customers

Joe Nocera reported in the May 24 issue of The New York Times on the deep contrast between American Airlines and Southwest – both powerhouses in the U.S. airline industry but with vastly different employee and customer care approaches.

Just look at how Nocera describes this year’s annual shareholders meetings for both companies – traditionally held on the same day every year (21 May this year) in Dallas-Fort Worth, home to both airlines. American shareholders were met with a picket line of flight attendants and pilots protesting contract negotiations. Southwest pilots, also in the midst of contract negotiations, ran a full-page advertisement in USA Today thanking outgoing chairman and co-founder Herb Kelleher for all he had done. American’s parent company chief executive spoke of layoffs, route cuts and additional customer fees. Southwest discussed its healthy balance sheet, significant earnings, and consistent profitability.

How does Southwest – a proudly low-cost carrier that has never had a layoff– do it year after year? Kelleher has said in past interviews referenced in this article: “You have to treat your employees like customers. When you treat them right, then they will treat your outside customers right. We honor our people constantly. They know that we value them as people, not just cogs in a machine.”

Gordon Bethune, former chief executive of Continental Airlines and old friend of Kelleher’s is quoted in the article commenting on Kelleher’s approach: “There isn’t any customer satisfaction without employee satisfaction. He recognized that good employee relations would affect the bottom line. He knew that having employees who wanted to do a good job would drive revenue and lower costs.”

This is exactly the point American Airlines – and numerous other foundering companies – fail to realize. Driving employee engagement by recognizing and rewarding employee efforts will always improve employee efforts on behalf of the customer. And happy customers increase your bottom line. It’s truly as simple as that – say “thank you” frequently, appropriately, and consistently to the people that matter the most – your employees.

Put "Trophy Value" into Your Recognition Program

The Incentive Marketing Association issued an interesting executive white paper on “Putting Trophy Value into Your Gift Card Program.” Based on a study that found gift cards to be the most frequently used type of corporate reward, the white paper highlights the trophy value in gift cards over cash in reward and recognition programs because gift cards cannot be confused with compensation while giving the recipient a wide range of choices for reward redemption.

The Globoforce innovative gift card model remains unique in our offering of gift cards for thousands of outlets around the world. The gift cards are merely the key, however, that unlocks the treasure chest of millions of shopping, dining, entertainment, travel and adventure options and experiences for your deserving employees.

It is this opportunity to share the reward experience with friends and family – and even brag about it in a socially acceptable way – that brings the trophy value to gift card rewards. It is also the best method to reinforce operational excellence goals through recognition. This is simply not possible with cash-based rewards or old-school merchandise catalog programs that limit the choices to a very small pre-selected list.

Pay Employees to Quit? Recognize Them to Stay!

Bloggers across industries and forums have been commenting on a recent Harvard Business Online article “Why Zappos Pays Employees to Quit – and You Should Too.” Zappos, an online shoe retailer that is focused on amazing their customers, puts new employees through a four-week intensive training course on the company’s strategy, culture and customer service focus. Employees receive full salary during this training.

Then, Zappos makes its newest employees this offer: “If you quit today, we will pay for the amount of time you’ve worked, plus we will offer you a $1,000 bonus.” Zappos does this to weed out the people who obviously do not have the commitment to be the strong customer service providers the company relies on for its success.

I appreciate this approach by Zappos and I’m sure they have achieved great success in hiring the best, most committed people for the job. But I wonder what they are doing to retain those talented and exceptional people over the long term. A company with the vision to institute an offer such as this one must be equally visionary in continuously and frequently recognizing their employees for their customer service successes.

Would you pay employees to quit? Do you invest in their successes through strategic recognition?

Metrics Guidance: How to Measure Recognition Success

HR Focus, the monthly publication of the Institute of Management & Administration, Inc., published an article on “How to Go Strategic with Benefits and Pay – and Meet Company Goals” in its June 2008 issue. This is a terrific, detailed article on how to measure the success of total rewards packages as well as individual elements of a rewards package – and how to figure out the metrics necessary to do so.

I am particularly pleased to see the very strong emphasis the article places on using your organization’s strategic plan to “guide the planning, structure and expenditures on benefits and pay so that the total rewards program is in line with the corporate goals.” This is the foundational tenet of a strategic recognition program and absolutely critical to get right.

The article goes on to discuss metrics that are meaningful to corporate management when evaluating the success of total rewards initiatives. This advice is equally applicable to measuring the success specifically of a strategic recognition initiative. I paraphrase this advice as metrics that should:

1) Reflect what’s important in the corporate culture
2) Measure significance relative to the employer’s strategic goals such as changes in productivity, cost and retention, which are more related to strategic values
3) Show how certain rewards drive employee performance
4) Demonstrate how the metric used to measure this performance is linked to the organization’s financial statements and corporate goals

When proposing any new investments in employees, such as with a strategic recognition program, showing how that program will be strategically measured against established corporate goals is critical to securing executive buy-in and, ultimately program success.