Total Rewards: Pay Compensation vs. Recognition Rewards

In a June issue, Personnel Today published an article on total rewards and the relationship between pay and engagement. The article quoted economics professor Simon Burgess’s meta analysis of performance pay, which concluded: “Employees respond to cash incentives, often in sophisticated ways that may or may not benefit the organization.”

Cash, of course belongs in an employee’s Total Rewards package – but only in the proper category of cash compensation (salary). The goal of a total rewards package is to achieve the highest return on investment with the optimal mix of rewards. Recognition is a critical component of that package, but is often forgotten by staff at all levels who typically only see pay, benefits and perhaps equity reflected in their compensation statements.

Adding recognition to the mix of total rewards offers a significant opportunity to motivate and engage employees. However, the tools and mechanisms used for each of these reward components must be different as each caters to a different need. Since recognition programs meet a different need for psychological feeding than salary, the rewards should be in a non-cash form to more distinctly differentiate them in the minds of the employees. This also overcomes the challenges with cash uncovered by Professor Burgess.

Organizational behaviorist Fred Hertzberg also dedicated many years to studying these different needs, finding that salary, supervision and working conditions would only prevent people from being dissatisfied. Hertzberg identified only one tool – recognition – that could bring employees to the point of satisfaction because only recognition feeds our Psychic Income™ – our human need for social acceptance, increased self-esteem and self realization that can never be met through compensation.

When communicated regularly and appropriately employees begin to see the complete picture of the company’s investment in them and the value the employee has to the company. Most companies who follow this best practice to realize the value of reporting on individual recognition today accomplish this by adding an additional line item for recognition to employee pay statements.

Less Compensation for More Satisfaction

Workforce Management recently posted stats from Monster Worldwide (an online job search and resume site) on workers willing to forgo pay increase in favor of landing their dream job. Worldwide, 76% of employees said they would give up a pay raise for a dream job. The results were even higher in the U.S., Switzerland and Italy where 82% would forgo a raise. But Ireland reported the highest with 84%.

Clearly, employees are placing far greater emphasis on workplace satisfaction than compensation. Many factors play a role in employee satisfaction, but receiving recognition for performance and knowing the individual job contributes to overall company success are both key contributors.

Strategic recognition programs accomplish both by tying recognition to company goals and values. That way employees are recognized and rewarded for behaviors and actions that align with company values, advance the company’s mission, and contribute to strategic success.

Be Happy: Give Your Money Away

A March issue of Science magazine included an article titled “Spending Money on Others Promotes Happiness.” If the goal of strategic recognition programs is to promote the happiness of our employees, then according to validated scientific research we should also be giving our employees a way to give more to others.

A unique feature in the Globoforce recognition platform is the reward recipient’s ability to choose “Charity” as redemption option. As our consumer culture begins to be buried in “stuff,” we’re finding more and more people are choosing to give their rewards away. This triggers a double positive reaction in the employees mind – once for being recognized by the company for their exceptional efforts and then again by the altruistic action of giving that recognition to those more in need.

Giving employees the Reward of Choice should never be limited to more “stuff.” Give them the ability to choose a memorable reward that is meaningful to them – in ways many managers may not have considered.

Job Satisfaction & Retention Survey: The Importance of Recognition

Salary.com recently issued its 2007/2008 Employee Job Satisfaction and Retention Survey, finding that employers are out of touch with employee satisfaction levels and continue to underestimate employee job search activities. This is a costly disconnect as the survey also shows employee replacement costs due to turnover increased 40% from $15,000 in the 2006/2007 survey to $21,000.

Consistent with previous surveys, “insufficient recognition” once again was a top reason employees’ cited for leaving a job. Recognition was nearly equal in importance to both men and women with only one percentage point difference in their reporting.

It’s concerning to me that the reporting on the value of recognition does not seem to change year over year, but employers do not seem to be learning from it. This tells me companies are either not changing their recognition practices in any meaningful way or they are tackling the challenge through ineffective methods.

In the case of recognition, perception is reality – employees must believe they have been positively recognized for their efforts and then have some means of remembering that recognition for it to have lasting impact on job satisfaction and ultimately employee engagement.

Employers: do you feel you are recognizing your employees appropriately? Employees: do you agree?