Observations from the 2011 HCI Human Capital Summit

Recognize This: Can recognition help build a great culture?  Dan Pink & Facebook think so!

I’m at the HCI Human Capital Summit this week in Atlanta and have been really taken by two presentations.  First, Dan Pink, whom I love for his passionate exploration into the new truth about what motivates us at work.  He once again set down his manifesto of what’s required for a win-win relationship between corporation and employee. Dan’s agenda of Autonomy, Mastery and Purpose is set to create better performance and personal satisfaction in equal measure. He tells how “now that” instead of “if then” rewards and feedback plays a vital role in this, helping to create the culture that sustains these core motivators.

Without any formal overlap, I earlier saw a presentation from Stuart Crabb, Director of Learning and Development at Facebook, and couldn’t help but think about how all of the HR strategies he described where so aligned with Dan’s mantra. He spoke about freedom to choose work, a strengths-based HR philosophy, and of course lots of passion!  A real eye opener about Stuart’s presentation was research he shared about how Facebook finds that their high proportion of GEN X and Y workforce. These groups are in need of constant praise and constant feedback, with GEN Y having a particular preference for co-worker recognition. This is such the case at Facebook that they have actually abolished the annual appraisal and instead rely on a constant feedback and a constant “Thanks” recognition mechanism. 

Not to mix the presenter’s words too much, but it seems like Facebook has really have figured out that constantly recognizing and feeding back on mastery, purpose and autonomy creates a company culture that feeds our true motivators.

I Got More Money in My Paycheck?

Recognize This: Cash rewards go unnoticed, leaving no impression on employees of your appreciation for their efforts.

To my American friends and colleagues: Did you notice the extra money in your paycheck? According to an article in last week’s Boston Globe newspaper, most didn’t.

“‘What?’ said the professor waiting for a train at South Station. ‘I get extra money?’ asked the mom with her son. ‘I didn’t realize that,’ said the guy getting his shoes shined. Three weeks after a payroll tax cut took effect, few people are noticing the extra money — $40 a week for some, $10 to $30 a week for most — that Congress put in their paychecks.”

As I’ve written many times before, cash rewards do nothing to reinforce the messages you’re trying to send. Employees often don’t even notice it in their paychecks. As one client told us after surveying their 300,000+ employees, of those that even realized they’d received a cash reward, 29% used it to pay bills and 18% didn’t remember how it was spent. Is that what you were hoping to achieve?

Or, as one Globoforce colleague of mine recently related:

“At my last company, I got a $500 bonus directly into my direct deposit account. From the time I left work to the time I arrived home, my wife saw that bonus in the bank account and went shopping with the girls. I never even saw it.”

Do you want your employees to actually notice and value the appreciation you give them? Find another way than cash to recognize them.

Why Cash as a Reward Won’t Change Your Culture

Recognize This: How you reward employees is a key indicator of underlying company culture.

We’re often asked why we don’t encourage the use of cash as a reward in strategic employee recognition program. The simple answer is: cash = compensation. Rewards must use a different “currency” than cash or employees will lump your “rewards” into their paycheck, guaranteeing it will become an expectation.

A better question to understand is: What kind of company culture do you want? A culture of appreciation or of compensation?

Your culture is built on the interactions and conversations that happen every moment of every day between your employees. Building that culture begins by encouraging recognition between and by all employees, yes, but it also builds on the rewards employees can enjoy that links the behaviors and actions they were recognized for to the memorable rewards they choose.

When that reward is cash, you can’t – as our client Symantec explained – have a conversation with colleagues, “Oh, I got $500 dollars.”

But when the reward is in a form that gives the flexibility of cash for limitless options, but with a result that employees can share and talk about with each other, you build a culture of appreciation. “Yeah, I went to the spa and had the most relaxing and rejuvenating massage treatment.”

Those are the conversations happening every day in the hallways of Symantec, reinforcing just how much the company values and appreciates the good work their employees do every day.

What kind of culture are you building in your organization?

Bonus ≠ Compensation. Stop Confusing the Two

Recognize This: Compensation and bonus are two different things, like oil and water. Stop trying to mix them together.

UK press reported last month that the banks find themselves between a rock and a hard place. On one side, the country is operating under deep austerity measures, banks are being accused of not lending to businesses enough, and London banks plan on paying out £7 billion in bonuses (or maybe they’ll reduce it to £4 billion). On the other side, if the banks agree with each other to cap bonuses (which are seen as a critical recruiting/retention tool), then they could be prosecuted for competitive collusion.

How’d the banks find themselves in this mess? Simple. Like on Wall Street in the US and elsewhere in the world, they confuse bonus with compensation. One banker is quoted in the article:

“There’s no chance that the big US investment banks will follow our example, which means that business and good people could leave London for New York or elsewhere if we’re seen to be paying less than the market rate.”

Did you catch that? “Paying” less than the market rate. Bonuses are not pay. Bonuses are given for achieving stretch goals, going beyond what is expected. Bonuses are not base compensation. They should never be an expectation.

The only thing your employees should be expecting to receive is a paycheck for work rendered. Anything beyond that – bonus, incentive, recognition, reward – is never “paid.”

Does your organization confuse bonus and compensation? Would you rather receive less compensation and hope for a bonus or would you rather know your base compensation is fair and reasonably equitable for the role and anything on top of that is icing?

“Paying Bonuses” * When Will We Ever Learn?

It’s nearly that time of year so many in compensation and benefits have come to dread – end of year bonuses and the resulting litany of: “How come she got the same bonus I did? Clearly I worked harder.” Or “This isn’t as much bonus as last year and I did so much more.”

Bonuses, when used appropriately, can play an important role in a Total Rewards package. The challenge with them tends to arise when bonuses become an entitlement. For example, one article (requires membership) I read this week outlined how to structure a “money pool” approach to ensure your top performers get more of bonus budget. Another article argued the benefits of “paying bonuses” to those who would be hard-to-replace and not just top performers.

What’s wrong with these scenarios? Let me count the ways:

1) You’re adding so much complexity to what should be – and can be - so simple. If you create a strategic recognition program, that allows anyone to recognize anyone else at any time for actions or behaviors you’ve pre-established as deserving of recognition, then naturally your top performers are going to receive a larger share of the “recognition” pie.

2) You’re separating the moment/action/performance deserving of recognition from the recognition itself. People need to be recognized soon after the action or behavior deserving of recognition or they will lose any connection to the moment. Think of this as the puppy approach. Annual or quarterly bonuses can then reinforce trends in performance or achievement of long-term goals as they are intended to do as incentives.

3) You’re possibly “rewarding” people who don’t deserve a reward. Especially with the idea that people should receive a bonus just because they might be “hard to replace.” If they’d be hard to replace because they’re a consistently high performer who does great work, then they will receive frequent recognition in a strategic program. If they’d just be “hard to replace” because of their degree or credentials, then giving them a bonus only encourages them to rest on their laurels.

4) You’re cutting people off from recognition for good work who may deserve it even though they’re not in the top 10 percent. Focusing so intently on top performers negates the excellent work another 70% of your workforce does that is also deserving of recognition, if not as frequently as the top performers. Adding recognition to the total rewards mix ensures a much higher percentage of employees can enjoy the appreciation they deserve.

The solution is to keep bonuses to a reasonable mix within the Total Rewards package and balanced with true after-the-fact strategic recognition. What’s the right balance? The answer depends on the company and culture, but consider reducing bonus levels by 30-40% within the ill-performing programs and reinvest that in a strategic recognition program. Our clients have proven strategic recognition tends to out-perform cash bonuses in improvements to employee attitudes and engagement by a factor of 10!

Oxymoron Challenge * “Bonus Guarantee”

Oxymorons are fun. There are the obvious ones – jumbo shrimp, airplane food, military intelligence. And then there are the ones you stumble across. Like “bonus guarantee.”

After the fallout from the recession and the reaction to ridiculous bonuses, not to mention the “soul crushing” structure such programs can take, I see hopeful signs that reliance on cash bonuses as the primary means of recognition reward is diminishing. One such sign was reported by WorldatWork based on data from Mercer:

“Almost all participants [30 financial services organizations from Europe and North America] noted that they have changed the weighting of components in their pay packages. 70% have increased base salaries while decreasing annual cash bonuses (94%). …

“94% of respondents have made or plan to make changes to their annual short-term incentive (STI) plan, commonly known as "the bonus." One-year bonus guarantees are used less than in 2009, with 57% of organizations having limited or eliminated multi-year bonus guarantees.”

I’m glad to see that base salaries are rising. That is necessary to counter what the CIPD reported on two years ago:

“Bonuses have become a recruitment and retention tool rather than a reward for good performance. There are so many corporate governance issues around permanent salaries that the only ‘wriggle room’ has been bonuses. That’s why in recent times there have been sums that have been seen as excessive, and the phenomenon of people asking for guaranteed bonuses – degrading the principle of paying for performance.”

It’s the comment in the second paragraph of the Mercer results I quote above that really gets to me, though – “bonus guarantees.” I’m also glad to see these continuing to fall, counteracting (I hope) what Bloomberg also reported on:

“More Wall Street employees received bonuses for 2008 than were expecting to, though many remained unhappy with them. … What this shows is the bonus culture is very deep set in the securities industry. There’s an entitlement culture amongst a number of people in the industry, which I think in the current industry is very misplaced.”

That’s why I argue so passionately against cash-based bonuses. They quickly become an expectation and an entitlement. Pay employees a fair wage. Recognize them with “After/That” appreciation and rewards, which are a surprise for work well done in alignment with your values and never an expectation. But stop playing around with the oxymoron of “bonus guarantees.”

Strategic Recognition * The Fastest Path to Talent Management Metrics that Matter

What do you think? Are we in for a double-dip recession? Seems to me that the economic pundits are waffling hard on this topic. In a Bnet article, Margaret Heffernan seems to think so, but she offers great advice for what to do in a double-dip – grow! Click over to read her case study of Timken and how they, “Invest when times are tough so we can capitalize on those investments in the good times.”

A Towers Watson survey found many US and Canadian companies are following this advice, at least in terms of their investment in “talent/performance systems,” citing these as the most critical HR Service delivery issues in 2010 (quoting):

• Talent/performance management systems (42% versus 35% in 2009)
• Streamlining processes/systems (35% — unchanged from 2009)
• Increased involvement in strategic business-driven issues (27% versus 23% in 2009)
• Defining human capital metrics and dashboards (22% versus 17% in 2009)

It’s great to see companies beginning to invest again, but it’s still important to remain frugal and wise in those investments. That’s why I advocate strategic recognition as the fastest, most cost effective means to talent management data. Within just months (not years), you can track and analyze trends in performance against your key objectives and values based on the wisdom of crowds through recognition, you can streamline processes by blending recognition and performance management metrics, you can create on-the-fly dashboards that report on the metrics your CEO and CFO care about, which increases your contribution to strategic business issues – and you can prove it.

Stop investing in talent management and invest in your talent instead. How are you beginning to invest?

Irrationality * It’s What Makes Us Human

Irrational. Some days, does it seem like that’s the best word to describe the workplace? I tend to like Dan Ariely’s research on irrationality. Initial research showed, “In eight of the nine tasks, the promise of a bigger bonus actually significantly decreased people’s performance.”

Paul Hebert recently reviewed Ariely’s latest book, The Upside of Irrationality on his i2i blog. Paul highlighted this very interesting twist on the impact of cash bonuses:

“In the experiment they told the participants that they already earned the 5 month bonus – and gave them the money, but told them they would have to return a portion based on their performance. If they maintained a certain level of performance they could keep the 5 months pay – but if they fell below they would start to “lose” their money.

“In this instance the negative effects on performance were even more pronounced – the first participant was so nervous he couldn’t complete the tasks and the second, when he started to fail immediately – ran out of the experiment with the money. In other words (my opinion) his loss aversion to such a high reward caused him to act in irrationally – to the point of stealing. Sound familiar?

“When awards are too big – and too expected – rational thinking is short-circuited.”

Why was the study structured this way? Because cash bonuses become an expectation. People begin to factor it into their “earned income” budgets. They expect to receive those bonuses at the end of the year, and the threat that the bonus might not materialize is enough to trigger deviant behaviors.

I can’t say I’m surprised by the findings. And that’s why I so strongly advocate against “If/Then” rewards – if you do this, you’ll get that. We’re in the business of “After/That” recognition – a surprise you’re not expecting when you do a job well. A sincere, specific appreciation of those efforts, but never something that you can come to expect.

Irrational. We’re human. To some extent we’re all irrational. But our job as HR pros in the workplace is to ensure that we’re not actively feeding that irrationality to the detriment of our firm.

Cash v Non-Cash Rewards * Why Does This Debate Keep Dragging On?!

“Just show me the money.” vs. “Nobody notices or appreciates the work I do. Why should I bother?”

Just another way of saying cash vs. non-cash rewards. Let me make this really simple. Cash does not motivate, it does not recognize, it does not appreciate. Cash compensates. Pure and simple.

And that’s not a bad thing. The media spin on recent research from Mercer tries to make it seem that way with headlines that scream: “Forget non-cash compensation: employees say ‘show me the money.’” If you read more deeply into the article you see this: “Leading reward elements perceived to have the strongest impact on employee retention and engagement for 2010 are base salary increases (41%)…”

This isn’t surprising. Quite a few companies need to increase base salary to return employees to level they were earning in 2008, much less give them a raise. That’s the realities of recovering from the actions taken in the recession when salary cuts and wage freezes seemed the norm.

But that doesn’t mean non-cash employee recognition and rewards will fall off in the coming months. As I said in my post on Compensation Café on Wednesday, you must build a solid foundation with appropriate, fair and livable base compensation. But once that’s done, you must then add the polish with recognition programs.

Another recent study from the Boston Consulting Group and the World Federation of People Management Associations showed that executives believe these areas are especially weak at their companies:
• Structured career management that rewards appropriate behaviors
• Recognition beyond compensation

The executives are right, buy why should they (or you) care? Another “SmartPulse” survey conducted by SmartBrief on Leadership released just two weeks ago asked: “What’s the most satisfying reward you can receive for a job well done?”

Cash seemed to win out at 30%. But when you add together 30% for “Praise and expressions of thanks from my team and customers,” 28% for “A handwritten thank you note from an executive/leader I respect,” and another 8% for “Public accolades and awards at a company awards ceremony,” that 66% craving appreciation in some form is more than double those who vote for just cash.

If you think just a couple percentage point raise is going to convey to your employees any level of appreciation, respect and desire to keep them (and their talent) loyal to your firm, think again.

What Goes Around * Stop Incenting Bad Behavior

As a blogger, you meet many interesting people and make several acquaintances through the blogosphere that you might not otherwise. One such relationship for me is with Doug Shaw, founder of What Goes Around Limited. Note the link when you visit his site – Stop doing dumb things to customers. That’s Doug’s attitude. We all know what we SHOULD be doing… so just step up and do it already! I like that attitude. It reminds me of a word I learned from an American colleague recently – it shows some “moxie.”

In a post last week, Doug went on a tear after hearing about a plan to restore short term financial incentives (bonuses) after all the mess they caused in this recession. Doug says it better than I can:

“OK, so having seen first-hand the value destroying, anti-collaborative behaviour that short term financial incentives drive, we’re gonna do it all over again. With a twist. We’ll let these sweet bonus carrots dangle a little further away. That way folks will have to focus even harder on the carrot, and from there I put it to you a stronger focus on the value destroying behaviour necessary to bag the carrot will emerge. Not happy? Furious more like!

“The case to ban financial incentives was one I first became really active on back in December 2008. We ran a workshop with some bright enthusiastic minds in and around BT. The purpose of coming together was to uncover the most effective ideas needed to improve customer service. Banning financial incentives was an idea agreed on by all in attendance. There were other exciting ideas around clearer dialogue and communication but it was the “don’t incentivise me, just pay me” discussion that flared. Since then I’ve looked in all kinds of corners (University of Miami, Harvard, the studies of Dan Pink to name a few), and discussed with all kinds of folk. And I find lots of useful practical examples of why these bonuses don’t work. I’ve pulled this journey together into a white paper (not a white riot) which you are welcome to take, read, argue with, whatever you like. As well as examples, it cites behavioural references which you may find useful.

“So how the hell am I gonna calm down now? Well I kept on reading and looking and I found two further interesting conversations. The first, called “You’re Getting a Bonus so Why Aren’t You Motivated?” was started on the Harvard Business Review by Eric Mosley, CEO and co-founder of Globoforce.”

Doug’s white paper is an excellent collection of examples on how poorly structured incentive programs simply drive bad behavior. I suggest giving it a read along with Eric’s Harvard Business Review article. Then come back and tell me: Are cash incentives worthwhile?

Is There Any Hope for Pay for Performance?

Pay for performance seems to be much in the news and HR trade publications lately. The general take-away from all of the articles is that pay for performance doesn’t work (or at least doesn’t work as well as anticipated or desired) but everyone does it anyway (to some degree) because everyone else is doing it.

A May article from Talent Management magazine tells us:

“The reason the pay-for-performance concept has been so disappointing is because the human aspect of motivating desired behaviors is not as cut and dried as the pay-for-performance approach generally implies. Most organizations simply don't know how to successfully define the performance they want, so organizations end up paying for failure rather than for performance.”

Paying for failure rather than performance – that’s what happens when you fail to clearly define, in an achievable and measurable (not subjective) way, what it is you expect people to accomplish. A June article (“Channeling Malcolm Gladwell on Pay Systems,” requires subscription log-in) from Workspan magazine cited the research on this:

“In the 2005 Annual Review of Psychology, two organizational psychologists said the following regarding the effectiveness of merit plans – which does little to increase one’s confidence level for using them: ‘Although merit pay continues to be the most widely used pay-for-performance program (especially among salaried employees), there is surprisingly little evidence about the performance implications of adopting, or not adopting merit pay programs.’

“In addition, three practitioner surveys show that performance management and pay-for-performance plans have considerable room for improvement.

“Two major surveys show that, in general, financial incentives are outranked by organizational, career and job-related factors for improving employee engagement and motivational levels. The 2007-2008 Towers Perrin Global Workforce Study found no financial incentives among the top 10 drivers of employee engagement. A 2009 McKinsey & Co. report found that three noncash motivators, including visibility with top management, are more effective motivators than the three highest-rated financial incentives, including increased base pay and cash bonuses.”

And yet… This month’s issue of Workspan includes an excellent case study (“Performance Management Rewired for the Recovery,” requires subscription log-in) of just how Intuit has made pay for performance work. Some Intuit methods that are far different from traditional (and often failed) pay for performance management approaches:

• Replacing “meets/exceeds” language in performance ratings with “delivering the business impact it needs”
• Using everything to reward performance – evaluation, compensation, recognition and opportunity
• Ensuring top performers are signaled, through various mechanisms, of their star ability

My point? Pay-for-performance has a role to play in the HR toolbox. But it’s not the only tool as it seems to have become in many organizations. It is but one of many methods.

We're Blogging Everywhere * Read Us in HBR & Compensation Cafe

Last week was a great week for Globoforce in the HR Blogosphere.

Eric Mosley, Globoforce's CEO, blogged for Harvard Business Review on why bonuses don't work. In "You're Getting a Bonus! So Why Aren't You Motivated?", Eric explains the downside of bonuses and offers an alternative solution that better delivers the desired improvements in productivity and strategic alignment.

Then read up on how that could work in practice in my post on Compensation Cafe: Appreciating the Runners as Well as the Winners. I tell the story of Tom, an avid if unskilled athlete, who was nevertheless voted team captain for his consistent demonstration of leadership, encouragement and wisdom among his teammates.

Click through to see how this relates to employee recognition.

Indicate Respect with Money * Indicate Value with Recognition

There seems to have been a flux in excellent books on the power of recognition to motivate and engage hitting the market in recent months. Two I recommend are Leading Outside the Lines: How to Mobilize the Informal Organization, Energize Your Team, and Get Better Results by Jon Katzenbach and Zia Khan and The 17 Rules Successful Companies Use to Attract and Keep Top Talent by David Russo.

I was first turned on to Leading Outside the Lines in this Forbes article in which the authors spoke specifically about why money is not a motivator.

“Emotional sources of motivation are more powerful [than money], and they are best conveyed informally in an organization through the respect of peers, the admiration of subordinates, he approval of one’s personal network and community and the like. Money becomes the default motivator because it is measurable, tangible and fungible.”

I think the authors are right. People designing employee reward programs often default to money as the primary reward mechanism because it seems easier – easier to distribute, easier to report on, easier to make sure the employee gets something they want and not another toaster, BBQ set or watch. The solution is to make strategic recognition rewards as measurable, tangible and fungible through a delivery model that makes sense globally. Local gift cards/certificates to merchants around the world is highly fungible but ensures the recognition recipient choose a truly aspirational and rewarding experience or item. Backed with our technology, such a delivery model is highly measurable on use, adoption and perceived value.

One chapter in particular from David Russo’s 17 Rules book was particularly powerful for me – “Cheerlead: The Magic of M&Ms.” In this one chapter, David hits on several important points of strategic recognition: frequent, on-the-spot recognition, authenticity in recognition, again on why cash is not motivational, and the bottom line value of recognition – as proven at SAS (currently No. 1 on Fortune Best Companies to Work For list).

I particularly liked how David dispelled the money as motivational myth. As I’ve said before, of course you must pay people an appropriate, living wage. But once people are paid properly, money as a motivator disappears. David puts it this way:

“The metric of the success was the employees’ response. If the employees wanted to be in the workplace, we were successful in our obligations as leaders. If the work environment was truly positive, we also noted that the workers – when paid good wages and benefits – didn’t focus on wages and benefits as the primary indication of whether they were valued.”

That’s what employees are truly seeking – an indication that they are valued. Respect them and their efforts with a proper wage and appropriate benefits. Then show and tell them how much you value them and their efforts with clear, consistent and frequent recognition of their behaviors and actions that demonstrate your values and help achieve your objectives.

Trends in Recognition Program Rewards

A recent issue of Incentive magazine offered interesting insight into trends in “incentive” programs and 2010 expectations in a reader forecast survey.

Results of the survey found that readers expect more budgets to be cut than increased in 2010, “but companies that maintained programs in 2009 say they gained a competitive advantage.” In answer to the open-ended question on reader plans to maintain and improve motivation and loyalty this year, a top response was “More recognition, both private and public.”

The study in particular looked at travel, merchandise and gift card programs, finding that:

• In 2010 budgets, as compared to 2009, gift card budgets increased or remained unchanged more than budgets for travel or merchandise.
• In terms of number of programs that will be run in 2010 vs. 2009, gift card programs increased more than any other while travel and cash programs were eliminated more frequently.
• For plans to reduce or eliminate travel, merchandise or gift card programs in 2009, gift cards once again were lowest across the board.

What can we conclude from these findings? Companies are finding that programs based around a reward delivery model of gift cards deliver the most return on investment. This is especially true in Globoforce programs that do not require the end-user to figure out what cards to offer in various regions of the world, or how to structure multiple use cards. Our Ex*change Network of global shopping, dining, travel, entertainment, adventure and charity providers lets your recognition recipients easily select the Gift of Choice most relevant and personal to them with the least amount of adminis-trivia on behalf of the company.

The Perils of Bad Research

I was appalled to see the structure of research that was recently released concluding that CFOs believe bonuses were the most effective way to acknowledge a job well done.

The research was poorly constructed with pre-directed selections (bonus, time off, department lunch, tickets to events) that were very specific but no broad option such as “recognition program”. From such a narrow selection of unrewarding rewards, no wonder CFOs primarily chose “Bonus” as most rewarding.

As another comment on the research pointed out, “bonus” itself is ill defined as some would consider non-cash (tangible) rewards to be bonuses as well.

Interestingly, the same organization released a survey a year ago that found:

"68% of CFOs said they are implementing strategies to boost the moods of their teams. The survey found that the most common way businesses are attempting to raise workplace morale is through increased and improved communication (37%); while 15% are enhanced employee recognition programs.”

Clearly this was a much more properly structured study. Our own research found that nearly all respondents (CFOs and HR managers) 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.

My caution to you, be careful how you read research.

Excellent Recognition Guidance from the Corporate Executive Board

The Corporate Executive Board (CEB) recently ran an excellent three-part series on recognition and reward best practices. Highlights are below, but be sure to click through and read the full series.

From Beyond the Bonus: Four Ways to Recognize and Reward with Little or No Money:

“There has been much written about the limitations of salaries and bonuses to motivate people to work hard and produce results. If it isn’t all about money, what is it about? Most management experts emphasize appreciation, recognition and building a sense of pride over increasing monetary rewards. This is not only good practice but for most companies these days, it is also a necessity.

“It’s a sad fact of work life that most leaders don’t thank their employees enough. A simple thank you goes much farther than you think, especially if it is connected to a job well done and delivered authentically. Acknowledging employee accomplishments and good behavior through meaningful words or gestures can boost employee’s emotional commitment. Be specific about the accomplishment and describe what helped the employee succeed.”

In Choosing the Right Approach to Employee Recognition, the CEB gives much the same advice we’ve been preaching for years:

“Even employers who are committed to recognizing and rewarding their employees have a hard time doing it right. Deciding what to reward and how is not easy, and that difficulty leads many employers to rely solely on financial compensation to motivate their people. … Here are five requirements for effective recognition and questions to help you evaluate your approach: connected to business goals and values, sincere, meaningful and adaptable, relevant, timely.”

In this post, CEB also points out the deviant behavior that can result from recognition done wrong. This is where the “strategic” component of recognition becomes critical. You must positively reinforce employees only for those actions that reflect the company values while achieving the strategic objectives. This approach ensures employees who, for example, increase productivity but do so by harming the environment will not be rewarded for their efforts. Values-based recognition is the key to ensuring employees display the right behaviors in achieving the company goals.

From Balancing “I” with “We”: Rewarding Teams and Teamwork:

“In a team-oriented environment, employers must pair individual employee awards with collective team recognition in order to effectively motivate teams. … Recognize team behavior and accomplishments. It’s one thing to recognize a team for achieving a particularly difficult goal. It’s another to hold them up for the way in which they achieved that goal. … Encourage employees to recognize peers. Recognition from superiors isn’t the only form of recognition that matters, or motivates. Knowing that your team thinks you’re doing a good job is important to keeping people engaged.”

There’s another aspect here as well. I was recently asked in another forum how to appropriately recognize in a situation involving a very long, complex project in which a team member had completed their portion of the work in its entirety long before the entire project came to fruition. My answer: recognize the individual in the moment for his great work and delivery that helped the team project stay on track. Then when the project is complete, recognize the entire team.

FORTUNE: Motivate without Spending Millions

I’m thrilled to share with you a feature article in April 12 issue of Fortune magazine: Motivate without Spending Millions."

The article discusses employee recognition, fully capturing our position that frequent, smaller rewards across the vast majority of employees is the best approach towards creating the most effective recognition program. This stance was validated in the article by Stanford Graduate School of Business Professor Hayagreeva Rao and the Corporate Executive Board, with additional narrative about our client Intuit’s employee recognition program.

Highlights from the article:

“The standard way of recognizing good performance – bonuses, new titles, high-priced quarterly giveaways to only the very top people – doesn’t motivate employees very effectively.”

“What really works, says Eric Mosley, Globoforce’s founder and CEO, especially for a budget-constrained company are small awards, all the time, to almost everyone. … By studying employee satisfaction and retention rates, he discovered that the best systems had similar and very surprising characteristics.”

“Counterintuitive though they may be, Globoforce’s theories hold up, says professor Hayagreeva Rao, an expert in organizational behavior at Stanford, who is studying whether motivational “juice” is a type of dopamine that is active by unexpected positive results.”

“Intuit VP of human resources Jim Grenier says that employee satisfaction with the recognition of their accomplishments is up four percentage points since the company changed its approach. ‘I’ve never seen bigger awards get such a bang for the buck,’ he says.”

To see the “similar and surprising characteristics” of the best systems and read the rest of the article, visit Fortune at this link.

"Resume Tsunami” Coming * Are You Ready?

Multiple research reports cited in a recent Wall Street Journal article see the job market improving and as a result some top talent already exiting organizations looking for a better opportunity.

Right Management found the same in a survey of North American workers who, when asked “Do you plan to pursue new job opportunities as the economy improves in 2010?” answered:
• 60% - Yes, I intend to leave
• 21% - Maybe, so I’m networking
• 6% - Not likely, but I’ve updated my resume
• 13% - No, I intend to stay

That’s 87% actively engaging in activity to leave your organization. Take a look around your company today. Which employees do you think are the 13% most likely to stay? I guarantee it’s not your top performers. Various studies on employee engagement so it is the most disengaged that stay in their current role.

Look at it another way: that's 87% of employees distracted by thoughts, daydreams or plans to leave your organization; 87% not fully focused on the task at hand, not fully engaged in helping you achieve your strategic objectives.

Now look at the employees through the lens of generation. What generation does most of your workers fall into? If yours is like most companies, the answer is Generation X (ages 32-44 years). Deloitte research found it is people of this generation most likely to leave with the research showing “37 percent of Gen Xers said they planned to stay in their current jobs after the recession ends, compared with 44 percent of Gen Yers, 50 percent of baby boomers and 52 percent of senior citizen workers.”

The Deloitte research further warns of a "resume' tsunami" once economic recovery begins, especially among Gen Xers, and notes that many executives were largely unaware of employee complaints unrelated to money.”

That bears repeating – “employee complaints unrelated to money.” Your employees are smart. They understand the need to cut back on expenses (of various kinds) in a recession. What they don’t understand and will run from is a company culture that does not communicate truth, recognize and encourage effort, and appreciate staff for the extra load so many have taken on in these last many frightening and confusing months.

What are you doing to prevent a “resume tsunami” in your organization - or even help employees engage and not fantasize about leaving? Are you just battening down the hatches and hoping for the best or are you proactively stepping up, communicating clearly with employees, recognizing them and their efforts, ) and engaging and aligning them with your strategic direction and objectives?

Tips for Creating a Corporate Culture

I write and speak often on the importance of fostering a culture of appreciation, creating a work environment in which employees want to engage. An excellent article in Kelly Service's Smart Manager recently offered “10 Ways to Create a Corporate Culture.” I’ll highlight just three key steps to creating that culture of appreciation:

“Publicly focus on the people, not the technology. As much as innovative technology can help employees excel, many remain wary. They often become uncomfortable or even fearful that state-of-the-art technology will make their jobs and themselves expendable. By focusing on your staff and their contributions, emphasizing that technology is simply a tool to help them, most employees feel a much stronger “connection” to the company.

“Publicly recognize employee performance, milestones, birthdays, etc. Don’t wait for major accomplishments to celebrate. Acknowledge all milestones, big and small. Your staff will not only appreciate these gestures personally, but they will tell their friends and potential future employees, too.

“Install non-financial benefit items that improve corporate culture. Personal days, caring for a sick family member days, employee-of-the-week (month, quarter, and year) awards, more prestigious workplace conditions, etc. prove to generate a positive effect on corporate culture and employee loyalty.”

I plan in the new year to write a good deal more on managing company cultures, but for now, my additions to these thoughts would be to clarify that it’s important to publicly focus on the people, period. Your greatest competitive advantage is your people – their innovation, their effort, their attitude – not the latest technological enhancement. Be sure they know that. Also, acknowledge all stellar efforts, big and small. Sometimes it is the seemingly minor (but well done) contribution of a lower-level employee that makes the rest of the work a success.

What would you add to a list of how to create a positive, appreciative, engaging corporate culture?

Strengths, Weaknesses, Ignored: How Are You Recognized at Work?

I think we all generally agree that engaged employees are a powerful force for delivering company success. I think we all also agree that you cannot force employees to engage. You can, however, create work environments and cultures in which employees want to engage and give their best.

So what can you to create such an engaging culture or environment? Gallup research released earlier this month found one simple factor – direct manager style – can profoundly impact employee engagement. To summarize:

• Managers who focus on employee strengths have 61% engaged employees and 1% actively disengaged

• Managers who focus on employee weaknesses have 45% engaged employees and 22% actively disengaged

• Managers who ignore their employees have 2% engaged employees and 40% actively disengaged

What’s the moral of this story? Employees crave any feedback from managers – any indication that what they do matters – but too many managers prefer to simply ignore the most basic of managerial duties. How many? According to Gallup, 25% of employees place themselves in the “ignored” category – not surprising when considered along with results from an Adecco survey (reported in Human Resource Executive) in which 76% of employees say the boss is lacking in motivational skills.

Some managers think they’ve effectively recognized employees by throwing money at them. Another recent survey from McKinsey proves the lie in this belief:

“Nonfinancial motivators are more effective than cash in building long-term employee engagement in most sectors, job functions and business contexts. … Respondents view three non-cash motivators – praise from immediate managers, leadership attention (for example, one-on-one conversations), and a chance to lead projects or task forces – as no less or even more effective motivators than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock or stock options.”

Once again, praise and leadership attention are cited as most desired by employees and most effective at fostering employee engagement. Are you one of ignored? Are you recognized for your strengths or called out for your weaknesses? How does this impact your attitude, effort and commitment at work?

Systems of Engagement

Last month the Hay Group issued guidelines for “Engaging and Enabling Employees for Company Success” in Workspan magazine, the publication of WorldatWork.

“Retaining top talent is a key concern in good times and bad, given the importance of these employees to a company’s success and competitive edge. Unfortunately, many organizations rely too heavily on compensation as the answer. … Instead of zeroing in on compensation, organizations should focus on two key areas to keep and motivate their talent: increasing employee engagement and developing systems that provide better support for employees’ success.”

The authors expand on these two key areas as follows:

“To foster high levels of engagement, companies must make greater use of nonmonetary rewards, such as career growth opportunities, meaningful job designs and recognition programs. …

“Organizations must ensure that employees understand what they are being asked to do … and that their individual goals are connected to what the organization needs to succeed in the future. Organizations that build better “line of sight” between business results and job accountabilities tend to have higher levels of organizational clarity and employee engagement.”

Why are non-monetary rewards critical for successful recognition? Because cash compensates, it doesn’t motivate. When rewards are given as cash (bonuses or incentives), it quickly gets lost in the recipient’s paycheck. The actual recognition for effort that encourages engagement is lost.

As for “developing systems to support employee success”, strategic recognition is a powerful system that, when deployed properly, gives employees that necessary “line of sight.” By following strategic recognition best practice of linking every recognition to a company value or strategic objective, you are strongly and positively reinforcing precisely those behaviors or actions that demonstrate the company values in achievement of those objectives.

What systems do you recommend for encouraging employee engagement? (Note, I'm not suggesting a system OF engagement, but a system for ENCOURAGING engagement.)

Soul-Crushing Bonus Structure * What Would You Do?

A recent question in the “Dear Lucy” column of the Financial Times nearly made me fall out of my chair in shock, but it highlights perfectly the way most cash bonus programs are structured.

The letter writer, a female vice president, tells of a very low bonus she received after a very high evaluation from her boss, which the boss justified by saying she had gotten as much as possible and more than people senior to her. The letter writer then found out “others with worse performance got far more money.” The writer was very upset by this and wrote to Dear Lucy to find out if she had any recourse.

Lucy’s response, in part:

“You think a bonus is a reward for doing a good job. In fact, it is a prize you get for playing a game that is complicated, skilful and highly political. The boss controls the money and information, and the players lobby to get the biggest slice.

“The winners are the people who get the biggest bonuses, but neither the winners nor the losers will know for certain whether they have won or lost because the boss will tell everyone they have won, even if they haven’t. The result is mass dissatisfaction and paranoia. Secrecy and disinformation abound.”

I know many people reading this post have experienced such soul-crushing bonus programs themselves. And this answer is why I advocate so strongly against cash-based bonuses. Recognition and appreciation of excellent work is not a competitive game in which a prize can be won. Recognition and appreciation should never be political. Recognition and appreciation should never be secret. Structuring bonus programs in the manner as the one described only serves to breed dissatisfaction, disengagement and an extreme lack of trust.

True, successful recognition, rather, is transparent, public or at least published (to account for those who may not enjoy being called out in front of colleagues, even for praise), and above all else, sincere. In this way, everyone knows the score – appreciation and recognition is shown to those who live the values and achieve the strategic objectives. Nothing is hidden and a culture of appreciation can begin to grow in a company – instead of a culture of in which your top performers, like this letter writer, are advised to go find another job.

Problems with Debit Cards in Recognition

I’m often asked why debit cards aren’t a good option as part of a reward mix when planning a strategic employee recognition program. The primary reason is debit cards are essentially equivalent to cash. As I’ve said before, cash doesn’t motivate. It compensates. Each element of a total rewards package must have its own “currency.” Cash is the currency of compensation, not motivation or recognition. Sincere appreciation of effort will motivate far better than cash that only becomes an expectation and entitlement.

Aside from the cash aspect, debit cards just don’t work in global recognition programs for three key reasons:

1) Don’t translate globally – complicated usage requirements, intentional breakage and little to no global availability in all local currencies

2) Exorbitant and often hidden fees – currency conversion, overseas redemption, taxes, and usage fees (as discussed in this New York Times article) make debit cards actually worse than cash

3) Lack of transparency – difficult for recipients to track balance, actual balance in local currency, and places where the card can actually be used

By pre-selecting gift cards in the local currency from local merchants, recipients are guaranteed to have a hassle free, enjoyable shopping, dining, entertainment or adventure experience of their choosing with no hidden fees, extra taxes or intentional breakage. Employers are assured of a predictable, explicit budget line item to plan for taxation gross-up and program budgeting. Debit cards simply offer too many opportunities to confuse, distort and mismanage the recognition experience.

Blinded by Science * Can Recognition Really Be Tested in the Lab?

In the last month, two reports hit the news on intrinsic vs. extrinsic rewards and why non-cash incentives are preferable to cash. While both research reports ultimately support our position of the value non-cash, intrinsic rewards, I couldn’t help but find fault with the research.

In the first case, Psyblog reported research on How Rewards Can Backfire and Reduce Motivation. Using children between ages three and four who all enjoyed drawing, the research proved that those children who did not expect a reward for drawing but received a surprise reward for their efforts actually spent more time drawing and enjoyed it more. “Those who had previously liked drawing were less motivated once they expected to be rewarded for the activity. In fact the expected reward reduced the amount of spontaneous drawing the children did by half.”

In the second case, Incentive magazine reported research due out next year that examined people’s propensity to say they prefer cash awards but then in fact actually want non-cash incentives more. The reason lies justifiability – with non-cash rewards people can choose a guilt-free luxury experience that they cannot justify when given cash. In the study, “those imagining receiving non-cash awards reported that they would be significantly more satisfied than those folks who had to imagine receiving a cash bonus. But when asked to choose explicitly, those with a choice overwhelming chose cash.”

So what’s wrong with the research? The same two aspects that are often the problem when recognition is tested in the lab:

1) Limited – In the Psyblog example, the subjects are very young children – not exactly the sophisticated individuals we work with everyday. While the research does show that intrinsic desires are better motivators, which is supported by a great deal of other research, I prefer to look to our many customers and their experiences as proof of the value of unexpected recognition of desired behaviors as more powerful motivators.

2) Limiting – In the Incentive example, a major fallacy of some portions of the research was dramatically limiting the choices presented to research participants. In a lab setting for control purposes, these limits are necessary but are certainly not realistic in the real world. Once again, our customers tell us one of the primary benefits of our program structure is the ability for their globally scattered employees to be able to choose a culturally relevant and personally meaningful reward, from thousands of options, without that burden of selection being on the administrator’s shoulders.

How do you read and filter the numerous research reports in this area? What’s your “lens” you read through?

The Negative Power of Recognition Done Wrong

On Monday I shared a Bnet video that gave excellent tips and insight for recognition done right. In a recent article, Bnet’s Kevin Gray highlighted HP’s failure with incentive pay, an equally excellent example of recognition done wrong.

In the early 1990s, HP added a bonus system, with was “highly experimental” for the HP culture of the time. The plan tied 10-20% of worker pay to team performance. The results?

“The experience of Hewlett’s San Diego production unit was typical. Management set a series of production goals for several teams, and based their workers’ pay on three levels of rewards. … Achieving Level 3 status meant each worker on the team would receive a bonus from $150 to $200 for that month. For the first six months, nearly every team hit the two highest levels. Good for employees, who were suddenly — if briefly — flush, but bad for the bottom line. Management found itself paying out more than it had expected, so it adjusted the target numbers upwards, essentially moving the goal posts during the game. A bad mood began to set in.

“High-performing teams refused to allow workers they saw as less experienced join them. Less movement between teams meant that less knowledge was shared or transferred among employees. Workers who bought cars and new homes had trouble paying loans when they could not achieve their numbers. The whole experiment grew increasingly messy, and workers became irritated. It became a sort of vicious cycle: Employees focused on doing what they need to do to gain rewards — and that just feeds their self-interest even more. In short, people chase the money — often, Beer says, “at the expense of doing other things that would help the organization.”

As I’ve said before, that’s a key problem of incentives -- you are pre-directing effort in a way that eliminates the need for creativity and can actually discourage innovation and the desire to give additional discretionary effort - often with unintended consequences. Incentives are all about the prize – the reward.

Recognition is all about the praise – the after-the-fact acknowledgment and appreciation of exceptional effort. Strategic recognition goes a step further to tie this appreciation to a company value or strategic objective, ensuring employees are demonstrating those values in line with your company mission and goals.

Building Alignment and Engagement into 2010 Planning

Watson Wyatt Worldwide and WorldatWork recently issued their 2009/2010 US Strategic Rewards Report: Looking toward Recovery – Realigning Rewards and Re-Engaging Employees. The report evaluates the impact of the workforce-based actions of the recession on companies’ ability to emerge in a competitive position and able to retain top-performers in the recovery. Three key findings were:

1) Organizational restructuring has been pervasive and deep
2) There has been significant negative impact on employee engagement (an alarming 25% for top-performing employees as compared to 9% across the board)
3) Employees believe the changes made by their companies are affecting work quality and delivery to customers

The extreme disconnect between management and line employees the report highlights in these last two points are particularly unsettling:

“Top-performing employees are 20% less likely to agree that they understand the link between their own goals and the company’s goals in 2008.”

“Forty-one percent of employees indicate that changes have had an adverse impact on quality and customer service, while only 17 percent of employers believe this is the case.”

Looking at those two findings together, I can only conclude that employees don’t know what they should be working on and how it contributes to company success (alignment problem again) and that quality and customer service is suffering as a result.

It is heartening to see that companies are finally beginning to understand the ineffectiveness of cash-based bonuses (anticipated to drop 24% from 2007 levels) while 23% of companies are increasing their use of recognition programs, defined by the report authors as “offering a cost-efficient opportunity to recognize the contributions of top-performing employees at a time when the average company has reduced core forms of compensation and benefits.” Why is this good news? Bonuses target a small cadre of elites and rules for achieving the bonus often seems to be a moving target. Recognition, on the other hand, is available to all as an after-the-fact show of acknowledgment and appreciation for a job well done.

How are you building alignment and engagement into your 2010 process? Share your approach in comments.

What Motivates? Survey Says: Meaning and Recognition

What motivates you at work? Bnet recently ran a poll asking just that. While some are still surprised, “cash” ranked third – behind “doing something meaningful” and “recognition.”

Not surprisingly, praise won out over cash in a similar survey done nearly a year ago, also on Bnet.

So why are people still surprised by this (as evidenced in the comments)? A common comment theme was that you can’t do something meaningful at work. You must look for meaning outside of the workplace and work is only a means to enable you to find that fulfillment elsewhere.

Nothing could be farther from the truth. In many ways GenY is leading the charge on changing this narrow attitude and more power to them. As I said in my comment to the first survey referenced, to many, “doing something meaningful” at work means knowing what your daily tasks are contributing to in the grand scheme of things – how they fit in the big picture and what value they bring to the table.

That’s the goal and primary benefit of strategic recognition, which ties every employee recognition to a company value demonstrated in achievement of a strategic objective. This process automatically shows meaning by telling employees clearly (and in the most positive way) how their valued efforts also deliver value.

Be sure to take our own weekly survey and see if readers of this blog align with those of Bnet.

Using Money to Motivate the RIGHT Way

A (well-deserved) media darling of late is Tony Hsieh, CEO of Zappos, a company and ethos I’ve written about before. Inc. magazine recently published a terrific article that gets to the heart of Zappos’ culture and how Tony inspired his employees to create, nurture and keep that culture dear.

Most people who know of Zappos know of the company’s policy of giving all employees four weeks of intensive training on the company history, culture and job role. And then all are offered $2,000 to quit. This tactic weeds out employees motivated by the wrong reason – money – to retain those who will be committed to living out and adding to the company culture.

These highlights from the article illustrate well Hsieh’s focus:

“What he really cares about is making Zappos’ employees and customers feel really, really good because he has decided that his entire business revolves around one thing: happiness. Everything at Zappos serves that end.

“Zappos’ 1,300 employees talk about the place with a religious fervor. The phrase core values can prompt emotional soliloquies, and the CEO is held with a regard typically afforded rock stars and cult leaders.”

Can your employees even recite your core values, much less discuss them rapturously? What are you doing to make your values real? A Zappos value is “personal growth.” To that end, the company offers advanced courses in business and marketing as well as stocking a library with books that are expected to be taken by employees for their own use.

Bringing company values to life is a core tenet of our strategic recognition programs. Every time an employee is recognized, that action or behavior must be linked to a company value. This takes the values off the wall plaque or the office entry badge and makes them real in every employee’s every day actions.

Debunking Motivation Myths

Earlier this summer Suzanne Bates, author of Motivate Like a CEO”, and David Javitch, CEO of management and leadership consulting firm Javitch Associates, both published their (very similar) lists of top 5 employee motivation myths. My own list of motivation myths below reflects elements of theirs. I bet your own personal list of motivation myths would be similar as well.

1) Cash Is King – Money doesn’t motivate. It compensates. Each element of your total rewards package must have its own “currency.” Money is the currency of compensation, not motivation or recognition. A simple “thank you” and sincere appreciation of effort will motivate far better than cash that only becomes an expectation and entitlement.

2) Don’t Worry, Be Happy – Keeping employees in the dark about office, company, industry and economic realities is the “ostrich” approach to motivation – bury your head in the sand and hope the bad stuff goes away. Employees are generally smart people. They see what’s going on around them. Instead, share the reality along with the plan for success (your strategic objectives) and how each employee can contribute to achieving them. Then recognize them for their efforts when they do so.

3) Having a Job Is Motivation Enough – It’s easy to be deluded by this misconception during a recession, but survey results show a majority of employees are planning to look for a new job when the upturn comes. For company leaders, that’s the same as sitting back and watching your top talent walk out your door to join your competitors. To maintain and even competitive advantage, be sure you are acknowledging the value your employees bring every day.

4) Motivation Isn’t for Everyone – Everyone is motivated – by something. Your challenge is motivating them to achieve your objectives in a way that reflects your values. Strategic recognition plays a powerful role in this through praise and appreciation that calls out every action or behavior that reflects those values and contributes to those objectives. This also flows into the next myth...

5) One Size Fits All – Motivating employees is as much about the personal benefit as the business outcome. If an employee works long nights and weekends to finish a project on deadline, they achieved your objective. But the motivation may lie in knowing their efforts will be recognized and they can choose to share the rewards with family through a vacation, perhaps, or other reward that is personally meaningful to their situation. Another logo shirt or lapel pin certainly won’t motivate.

What have I left off? What other motivation myths have you encountered?

The Role of Tangible vs. Intangible Rewards in Strategic Recognition

The value and role of tangible vs. intangible rewards is an ongoing argument. I’ve caused some of the disagreement myself with my post on Why Incentives Fail (but recognition works). Kevin Sensenig of Dale Carnegie & Associates recently summarized this issue well in the article “Human Potential Untangled”:

“The traditional forms of motivation are compensation and benefits. The problem with these tangible rewards is that they are short-term motivators. The more people get, the more they develop an entitlement mindset. Adding more and more tangible rewards does not necessarily increase motivation or engagement. However, taking away tangible benefits or entitlements really de-motivates or disengages people.

“On the other hand, intangible rewards, such as a “thank you,” “good job,” or effective coaching let people know their managers care about them and value their contributions. The more intangible forms of motivation the better—they raise engagement levels by helping people feel connected.

“The additional advantage of using intangible rewards is that while offering them greatly increases levels of engagement and motivation, withholding them tends not to have a significant long-term de-motivating impact. Additionally, intangible forms of motivation are not costly to provide. So for a small investment of time in showing appreciation, the resulting improvement in engagement and connectivity can be huge. The key is in giving credible, sincere, and respectful appreciation.” (emphasis mine)

Are you still fighting the tangible vs. intangible battle in your organization? Both have their roles, but don’t confuse one with the other. Join the conversation in comments.

How Much Is 5 Years Worth to You?

Can you place a value on five years’ loyal service? Think about employees in your organization who are at or near that mark? Did John deliver the same level of commitment and value to your organization as Sally?

Look at this example:

“When surveyed, employees consistently will ask for cash, but research shows that it is the least effective form of recognition – How come? Steve is – the model employee. He was surprised when his 10-year service award package offered him cash as an option. That his employer was able to put a price tag on ten years of his life, left him feeling a little cold and confused. …

“You can give a gift valued at 1% of an employee’s salary, and if done enthusiastically, they’ll feel the love. But, give them a 1% bonus or raise and they’re looking at the classifieds. Same dollars, totally different result – it’s all about perception!”

The research backs this up. McKinsey found that $1,000 given as recognition had 10 times the impact of that same $1,000 given as base compensation.

Letting the employee know very clearly their value to the organization in clearly non-monetary terms is equally as important. As Scott Jeffrey, a professor of management at the University of Waterloo, has pointed out:

"People just want to feel valued. Employees want to be paid fairly - but what really spurs a willingness to go the extra mile is acknowledging contributions, saying thank you and showing recognition."

To be meaningful, employee recognition must be fair (in line with performance and used appropriately) and personal (catering to each employee’s unique preferences and desires). Globoforce’s strategic recognition programs are uniquely designed to cater to every employee’s personal preferences to ensure meaningful, relevant rewards everywhere in the world.

How do you “value” your employees at their major anniversary marks? How do you show them you appreciate their efforts every day? Do you do so in a way that tells them, “I know you. I know what you like and don’t like. And I appreciate those differences in you?” Tell me in comments.

Motivating Employees When Merit Increases Are Cut

In this economy, many companies are trying anything to cut costs before turning to layoffs. We’re seeing variable pay and incentives components put under increasing budget pressure. Indeed, for many companies it may be a no-bonus year. And for other companies, even merit increases are under pressure with plans for small merit increases, no merit increases, pay freezes, and even reductions in pay.

Jeffrey Pfeffer, Organizational Behavior Professor at Stanford’s Graduate School of Business, was recently quoted in Workforce Management saying:

“Typical pay increases are not enough to motivate employees, but they are enough to irritate them. … Even when companies create seemingly significant pay differentiation between low and high performers, the actual cash increase is insufficient to sustain performance – or it drives the wrong behaviors. … Effective management is a system, not a pay plan. The mistake is that companies try to solve all their problems with pay.”

In this recession, HR and company leaders need to urgently rescue employee morale and productivity. This rescue is necessary due to the cutting of awards, incentives and bonuses that leaves a gap with nothing meeting the higher-tier needs (not nice to haves) in Maslow’s Hierarchy. In a recession, this gap is filled with Fear, Uncertainty, Panic, and Mental Paralysis. This is precisely where a recognition program can help you come to the rescue of employees’ psychic income needs among all of the pressures on core compensation.

And the returns for such an investment in recognition are proven. McKinsey published a study last year showing a $1,000 payment had a 10 times higher return on investment when it was given as recognition than when it was given as an increase in base pay. So that’s a 10 times higher return on investment through a recognition program. There was also another study by a UK firm, White Water Strategies, who found the impact of a 1% pay increase could be gained simply as the result of frequent appreciation.

Moreover, a meritocracy-based performance and reward culture is enhanced through such strategic recognition. Our client Biogen Idec, for example, sees recognition as a vital part of the company’s culture of meritocracy. Company leadership wanted a recognition program that would allow anyone to show colleagues appreciation for their contribution and hard work, believing such an effort would motivate employees to deliver the same kind of desired results on an ongoing basis for the benefit of colleagues, patients and shareholders. Globoforce delivered this with the Applause program.

One thing that should be clarified (and resolves many of the problems of linking reward to performance) is the "currency" used for reward. By their very nature, cash recognition (or bonuses) are a problem as cash quickly becomes an entitlement and is easily confused with (or subsumed by) compensation. If the goal is to recognize above and beyond efforts of employees then recognition with a different “currency” than the cash used in compensation must be applied. That’s where strategic recognition comes in — giving a different currency for recognition with clearly defined and oft-repeated reasons deserving of recognition — to ensure employees know when they are being PAID vs. being REWARDED.

Strategic recognition accomplishes these additional critical goals not fully possible through compensation:
• Telling employees how their efforts matter – how they are not just working for the company, but with it.
• Encouraging cooperation and teamwork
• Encouraging people to notice and acknowledge stellar efforts of their peers
• Offering a “360° review” performance mechanism
• Offering a means for constant feedback throughout the year
• Making the rate of reward equivalent to rate of effort, employee by employee

What’s the status of merit increases in your organization? Are you going forward? Limiting them? Eliminating them? What’s the reaction of employees? How are you counteracting any potential negative effects? Share your thoughts in comments.

Are You Creating a Culture of Entitlement and Competition?

In an earlier post this week, I talked about a major problem with cash bonuses - they are often used to fulfill the wrong needs. In this post, I’ll cover two additional serious problems with using a cash-based award structure – entitlement and competition.

Entitlement – Bloomberg News recently reported the results of a survey showing, “More Wall Street employees received bonuses for 2008 than were expecting to, though many remained unhappy with them.” This screams of the entitlement attitude that soon follows when one comes to expect a bonus as part of a basic compensation package. As the survey author says, “What this shows is the bonus culture is very deep set in the securities industry. There’s an entitlement culture amongst a number of people in the industry, which I think in the current industry is very misplaced.”

I think many average workers would put that far more strongly. “Main Street” workers would likely say they are equally entitled to their hard-earned retirement funds, to their taxpayer dollars going to rebuild roads and schools instead of a corporate bailout, to retaining their jobs.

Unfortunately, that entitlement has been removed from them by those very Wall Street employees who are “not happy” with the bonuses they received for one of the worst market failures in history. There can be no sounder reason not to use cash-based bonuses as rewards.

Competition — The inventor of the Internet firewall, David Pensak, credits cash bonuses as killing the innovative spirit of employees (and thus companies’ competitive edge). David says in a recent article:

“Most people in corporations don't know when they're doing well. The only feedback [employees] get is cash bonuses. Cash bonuses help employees pay for things they have already bought. The money is immediately forgotten by the recipients, but not by their colleagues. Word spreads. One would ask, ‘I got only $500. Shouldn't I have gotten $1,500?’ When you need teams, this makes employees into competitors and undermines teamwork.”

Now more than ever leaders need their employees to pull together as a team. Unfortunately, the recession makes this more difficult as employees are afraid for their own jobs and angry over layoffs. But leaders certainly shouldn’t throw divisive cash bonuses into the mix. Strategic recognition of team efforts that ensures team members, whether located in Miami or Mumbai, receive the same value of award overcomes these competitive issues as well as allowing the recipient to choose a personally meaningful reward from millions of options.

Realize more return for your investment in recognition by kicking cash bonuses to the curb. As I explained extensively in this post, cash rewards also do not deliver the performance boost of non-cash rewards, as proven by numerous studies. Get more for your money while also creating an atmosphere of cooperation and a reason to keep performing at a high level.

Have you seen the fallout form cash rewards in your business? Tell us about it.

What’s All the Recognition Fuss About?

Quite a lot, actually. The news headlines around the world in the last couple of weeks have been nailing bailed-out banks to the wall for trying to continue with traditional employee recognition junkets, senior executive bonuses and other schemes that are ill-conceived in the best of times but in this economy show how truly out of touch these executives have become.

A quick listing of just some of the latest headlines:

• Major U.S. bank Wells Fargo CEO John Stumpf actually took out a full-page advert in several major U.S. newspapers (text available here) to justify its since cancelled Las Vegas junket
• A bank in Wisconsin, USA, planned a trip (since cancelled) for 100 employees to a Puerto Rican resort after receiving half a billion dollar in federal stimulus funds.
• The Royal Bank of Scotland “bowing to government demands” to reduce investment banker bonuses from £1 billion to £175 million and cancel future bonus schemes.

Do hard working, dedicated and productive employees deserve to be recognized for their efforts? Of course, but firms must be more judicious in their use of recognition. Massive junkets offered in the name of recognition, regardless of tradition, are not wise in the current environment and, I would argue, are not wise at any time. For truly effective recognition, employees should be recognized when they do something worthy of recognition, not months later. This is critically important to driving home fundamentals such as company values or strategic objectives that you need to reinforce through recognition of behaviors that reflect those values and objectives. This must be done in the moment for full impact.

And employees should be given a choice of how they want to be rewarded for that recognition. Public acknowledgment is anathema to some, desired by others. Some may prefer to choose a vacation with family over a glorified business trip with colleagues. Others may not choose travel at all. My point is, to be meaningful, recognition should be personal.

And in regards to bonuses for bankers and financiers who oversaw mass failure in 2008, I like how John Hollon, editor at Workforce Management, put it:

"Regular Americans believe that Wall Street bankers are largely responsible for the financial mess the country is in right now. Whether that perception is right or wrong, Stumpf and his CEO friends need to buck up, shut up and be more sensitive to how their business practices might be perceived by the folks on Main Street. This is hardly the time to defend business as usual, no matter how legitimate it might ultimately be."

Let’s look at a couple of examples of those who got it right.

First, there’s the Miami banker that gave $60 million of his own money to his employees and even former employees. “After selling a majority stake in Miami-based City National Bancshares last November, all [Leonard Abess Jr.] did was take $60 million of the proceeds -- $60 million out of his own pocket -- and hand it to his tellers, bookkeepers, clerks, everyone on the payroll. All 399 workers on the staff received bonuses, and he even tracked down 72 former employees so they could share in the windfall.”

While I typically advocate against cash-based bonuses, this is entirely different. This is a man who looked at the profits of his business and realized he could have never realized that value without the effort of all his employees. This is more a profit-sharing plan, albeit a surprise, than a cash bonus. And it’s that surprise factor – a reward in recognition of years of dedication, loyalty and hard work – that sets this story of banking bonuses far apart from those I discussed above and elsewhere.

And second, there’s our client, Nortel Networks, who fought in bankruptcy court to keep its strategic recognition program for its employees. As reported in the Globe and Mail:

“The company has asked for court permission to keep the recognition program, known as Excellence@Nortel. In court filings, Nortel argues that these programs are critical to boosting morale and making sure its 26,000 employees don't spend their time looking for work elsewhere. Nortel and its subsidiaries ‘believe that in this difficult time it is essential that they be permitted to continue their practice of providing limited awards in recognition of the exceptional and outstanding work of their employees,’ the company said in a filing in the Delaware bankruptcy court last week.”

Employee recognition has proven to be so strategic to Nortel, it is specifically requesting funding to continue the program. This shows beyond a doubt Nortel understands it can recover under bankruptcy protection and emerge to again lead its industry, but it cannot do so without the commitment and hard work of its employees. This is also true for many companies struggling in today’s tough economy.

Our CEO at Globoforce, Eric Mosley, recently wrote an article in Chief Executive magazine that concluded with this observation and challenge:

“In today’s challenging economy, companies are looking for new and creative ways to enhance performance within the organization. Realizing employee engagement through strategic recognition efforts holds the potential to be the next significant ROI opportunity. These programs empower companies to create a unified, global workforce, aligning employees from multiple generations and multiple cultures around the very essence of the company, its core goals and values. What was once relegated to a tactical task that usually sat at the bottom of a priority list now sits squarely on the desk of the CEO. Are you ready to heed the call?”

I ask you, the readers of this blog – are you ready? Are you ready to get recognition right? What steps are you taking to keeping your employees engaged, motivated, and focused on your critical tasks? Join the discussion.