Running a Successful Recognition Program

Motivating and rewarding employees has never been more important as years of layoffs have left employers with fewer employees, who have been asked to do much more with much less.

Donna Oldenburg the show director for the Incentive Show and president of Oldenburg Incentive Solutions, a consulting firm

Donna Oldenburg

specializing in the incentive and recognition industries, spoke with PROMO P&I about a number of issues related to employee incentive.

There are some major shifts underway and you might be surprised to find that, while cash is often an award preferred by employees, it may not be effective for the bottom line. In fact, 32% of respondents to an American Express Incentive Services study admitted that a cash bonus did not improve their work performance.

Oldenburg is also the former publisher of Incentive Magazine and the former editor of Premium Incentive Business magazine. She has 20 years of incentive industry experience.

PROMO P&I: Incentives have been largely targeted at sales employees who clearly showed a connection to the bottom line. That seems to be rapidly changing with more and more companies targeting incentives at employees overall. Why the change?
OLDENBURG: A number of reasons. Most importantly companies have finally begun to realize that customer loyalty is vital to their survival. What keeps customers loyal? Naturally the quality of the product is important, but in an age of so many like products, it is often quality customer service that keeps customers coming back. That means it has become more important than ever to motivate the people that have an impact on that customer’s experience. This includes everyone from the customer service rep, to the call center, to the shipping and returns department etc. If these employees are motivated and rewarded to provide superior service, then they will give that customer an extraordinary experience, which will ultimately keep those customers coming back. In summary, if you are striving to be a great company, then you first have to be a great company to work for. It’s impossible to ask your employees to give your customers a great experience when you’re not giving them a great work experience.

In addition, measurement models developed by professionals in the incentive and recognition fields have made it easier than ever to show a direct correlation between non-sales employee performance and bottom-line profits. That has made it easier to justify these programs to senior management who demand to see measurable results.

PROMO P&I: Over the last five years, as tough economic times have forced companies to use layoffs and salary freezes, many employers have scaled back or cut employee incentive programs. Industry experts say the decision to stop recognizing and rewarding employees is simply not good business. Why is that?
OLDENBURG: Quite simply because the decision to eliminate or scale back employee incentive programs during tough times is shortsighted. If you buy into the Bureau of Labor Statistics projections that a labor shortfall is just around the corner, then your company cannot afford to remain complacent and assume that people are just happy to have their jobs. If a company fails to motivate, recognize and reward its best and brightest now, it can be sure its top performers will be the first ones out the door as soon as the labor market opens up. When you consider the cost of employee turnover (it has been estimated at 30% of an individual’s salary and benefits package), it’s quite clear that human capital management must be a priority if companies wish to survive long-term. Part of that human capital management strategy must include programs to recognize and reward performance.

PROMO P&I: When you talk about employee recognition, who exactly should be motivated in a company?
OLDENBURG: Everyone. Each member of your team, whether they are senior executives or line workers in the factory. Every one of them plays a vital role in making your company tick. The best types of incentive and recognition programs are integrated programs that incorporate employees at all levels. While the specific objectives may vary for each employee (boost sales, handle more calls etc.), all their efforts have a powerful impact on the end result and ultimately a company’s bottom line.

Asked about the pros and cons of popular types of rewards, Oldenburg offered the following assessments:
Merchandise awards
Pros: Varied price points; high perceived value; trophy value
Cons: Finite number of award options, administration and fulfillment challenges

Travel (group and individual)
Pros: Appeals to the participant’s imagination; creates bonding opportunities; can include other goals-meetings/training; meets and emotional need
Cons: Costly; group movements are complicated and more difficult to control

Gift certificates/debit/stored value card
Pros: Convenience/ease of administration; freedom of choice; customization; database building components.
Cons: Recognition as an award not as direct; doesn’t show same amount of effort; some still consider the cards a form of cash, particularly an unfiltered debit card; no tax breaks even if presented as a service or safety award

Plaques and recognition awards
Pros: Extremely economical; work well when integrated with other awards; reinforces message over a lifetime
Cons: Has a limited ability to change behavior

Services (such as a day at the spa or housecleaning services)
Pros: Appealing with today’s hectic lifestyle; may be something the employee might not ordinarily do for themselves
Cons: Can be difficult and time consuming to administer; need to know recipients’ taste

Cash
Pros: Easy to administer; consistently selected by recipients as the most desired award
Cons: Not memorable; considered income; seen as an entitlement; not as effective as tangible awards; no trophy value; cash has no right-brain appeal; poor perceived value; cash offers poor ROI

PROMO P&I: Why can’t companies just recognize people with cash instead of tangible awards, isn’t that what employees really want?
OLDENBURG: True, cash is what most employees will say they want. But ultimately a company must consider what is in the best interest of the company long-term and that is not cash awards. In fact a study conducted by Gulf Oil several years back concluded that it can take up to six times as much cash to do the same job as non-cash incentives. Here’s why. Once basic needs are met through adequate compensation (and it’s very important to stress that employees must be adequately compensated before these programs can work), then employees are typically looking for something more. Humans are emotional beings and therefore motivating them by touching their emotions can be very effective. How do tangible awards such as merchandise and travel touch their emotions? In several ways. People can dream about the awards, envision themselves on that European vacation, or watching that state-of-the art television. There is an emotional, feel-good connection. In addition, tangible rewards give recipients bragging rights. They’re proud to show off what they’ve won, or talk about their trip. How many people run over to their neighbor’s house and show their bonus check? It doesn’t happen. Also each time that recipient uses that reward, or remembers that trip, the positive memories are reinforced and that results in long-lasting positive feelings toward the company. One of the major problems with cash awards is that they are often lumped in with a paycheck and used to pay bills, or buy groceries. Because they are lumped in with a paycheck recipients of cash awards begin to view them as compensation. Eliminate a cash bonus program and in the eyes of that employee you have cut his salary. Programs with tangible rewards can be cut back if necessary without the same level of repercussions.

PROMO P&I: What are the rules of thumb employers should follow when choosing employee awards?
OLDENBURG: Make awards truly special. Be sure to offer things employees want, but may not necessarily buy for themselves. Be sure to maximize and capitalize on social reinforcement qualities. What this means is choose items that employees can use time and time again and show off and share with their family and friends. This way you are reinforcing the positive memory of how they earned that award each time they use it. Those positive memories translate into good feelings toward the company.

PROMO P&I: When designing a program to motivate employees, what other components, if any, should be tied in with an incentive program?
OLDENBURG: I think it’s always important to keep focus on employee development strategies. By this I mean it is important, particularly in tough economies, not to lose sight of the fact that you need to continue to train and grow your people. You want them to be ready to move into that next spot should their manager move on. Keys to motivating today really include a combination of training and development, programs to reward outstanding performance and encourage entrepreneurial spirit.

PROMO P&I: How best should employees be presented with an award?
OLDENBURG: With any of these programs the presentation is a crucial element. Most people crave recognition and that pat on the back can be as powerful as any tangible reward. But remember presentation is an art onto itself. It’s important that the award be presented in a timely manner to assure your don’t lose the motivational benefits. It’s also important to have a formal presentation with the employee’s peers present in some type of special venue. The only exception to this would be in the case of an employee who is very uncomfortable with public recognition. Make sure if you are presenting the award that you are prepared with what you plan to say about the employee, mention their special accomplishment and share some personal knowledge about them. Be sure to do your research. Tie the employee’s contributions to company values and be sure to talk about the company and pride in working there. Spread these good feelings around; they can be contagious. Also be sure to explain the purpose of the award so fellow employees understand why the person is being recognized. Most important, be sincere and personable.

PROMO P&I: What data and or information are available to back up the notion that employee incentives have a positive impact on a company’s bottom line?
OLDENBURG: There is a great deal of research available today to demonstrate a direct correlation between employee motivation and company performance. Perhaps the most impressive numbers are from an Andersen Consulting survey a few years back. This study reveals that programs to retain and reward leading sales, marketing and customer service people can give a $40 million lift to the bottom line of a $1 billion company. An Aberdeen group study credits these rewards programs with generating a shareholder return almost 40% higher than that of companies without such programs.

Another study from the Society of Incentive & Travel Executives (SITE) Foundation found that that incentive programs aimed at individuals increase performance an average of 22%. Imagine that impact on the bottom line!

Finally, as we know, being able to motivate employees translates into greater employee retention. According to an article in the Harvard Business Review entitled, “Putting the Service Profit Chain to Work,” even a 5% increase in employee retention can result in a 25%-to-85% increase in corporate profitability.

These studies are just a small sample of available research, but I don’t think anyone can deny the findings are quite powerful. It’s time for companies to recognize that an effective human capital management strategy including reward and recognition programs is essential for long-term survival.