Value and ROI in Employee Recognition

7/28/2019 Value and ROI in Employee Recognition

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A u g u s t 2 0 0 9

The Value and ROI inEmployee Recognition:Linking Recognition to Improved JobPer ormance and Increased Business Value —The Current State and Future Needs



The Value and ROI in Employee RecognitionCopyright © 2009 Human Capital Institute. All rights reserved.

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Executive Summary ..............................................1

Introduction ...........................................................2

The Place o Recognition in the Total RewardPackage .................................................................7

From Recognition to Business Value: TheRecognition—Motivation—Engagement—JobPer ormance—Business Value System ..............10

Measuring the Value o Recognition ................13

Case Studies: Recognition Programs to ImproveSpeci c Business Functions ...............................24

Conclusions: The Current State and FutureNeeds o Studies into the Link betweenRecognition and Business Value........................28

Appendix I: Theories o Motivation ..................31

Appendix II: The Future o Measuring theBusiness Value o Recognition ......................... .. 34

Works Cited.........................................................35

Contents




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Today’s economic challenges requireorganizations to nd new ways to not onlyreward top per ormers, but to motivateall workers to improve per ormance whilemaintaining or increasing business value. Bothmust be done as cost-e ectively as possible.

Traditional methods or keeping and motivatingworkers utilize compensation and bene ts.However, as this report emphasizes, thoseare only two parts o an organization’s “TotalReward” package. In act, organizations canreward their workers in many ways, includingwith pay, bene ts, work-li e improvements,and incentives or pre-determined jobper ormance—as well as with various orms o recognition. WorldatWork de nes recognitionas practices that:

Acknowledge[s] or give[s] special attentionto employee actions, e orts, behavior or per ormance. It meets an intrinsic psychological need or appreciation or one’s e orts and cansupport business strategy by rein orcing certainbehaviors (e.g., extraordinary accomplishments)that contribute to organizational success.Whether ormal or in ormal, recognition

programs acknowledge employee contributionsimmediately a ter the act, usually without predetermined goals or per ormance levelsthat the employee is expected to achieve.Awards can be cash or non-cash (e.g., verbal recognition, trophies, certifcates, plaques,dinners, tickets, etc.).(www.worldatwork.org/totalrewards)

This report highlights recognition’s role bydemonstrating that:

n Recent studies by Gallup, the CorporateLeadership Council, Towers Perrin and othersshow that recognition is highly correlated toimproved employee engagement with boththe employee’s work and organization.

n Increased employee engagement has adramatic positive e ect on improving jobper ormance and capturing business value.

n Organizations actively seeking to improveemployee engagement, including throughthe use o ormal and in ormal recognition,

nancially outper orm their competitors.n Unlike compensation and incentive-based

programs, recognition programs potentiallycan create a positive cycle o ever-increasingemployee engagement and motivation, withresulting improvements in job per ormance-related behaviors to optimum levels with alimited investment.

In addition, we present three case studies—Scotiabank, Delta Airlines and MGMGrand—that illustrate how some organizationsare restructuring their recognition programs tobetter align them with employee engagementand business strategy. A key nding, exempli edby these case studies, is that recognitionprograms need to include multiple ormso awards—e.g., what is recognition or oneworker will not necessarily work with all. Also,recognition programs need not be expensive.

In act, many o the studies we discuss showthat non-cash awards, including simple verbalrecognition, usually work best. What matters isthat the recognition is valuable to the workerand is awarded or behaviors linked to speci c job per ormance goals.

This report closes with a discussion o theneed or urther studies o recognition in theworkplace—namely we call or:

n New, rigorous empirical studies that accuratelymeasure the gains achieved by implementing

speci c types o recognition programs.n More e ective use o Return on Investment

(ROI) and other methods that can bettermeasure the long-term gains in businessvalue that are the hallmarks o success ulrecognition programs.

Executive Summary




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Bonuses, incentives, rewards and recognitionare making headlines today— or all the wrongreasons. Pulled into the current emotionalenvironment, these proven organizationalper ormance tools have become the ocus o a one-sided media critique that overshadowsor ignores their value. While any tool can bemisused, these approaches have an evidence-based history o providing value to organizationsand their employees.

Several reasons drive individuals—employees,employers, taxpayers, politicians and reportersamong them—to question the value orappropriateness o incentives or recognition:

n Defnitions. Most people do not understandwhat incentives or recognition plans are, orrecognize the di erences between the two(see Defning the Landscape: Key Terms ).

n Ine ective use.Some managers andorganizations do a poor job designing,implementing and managing these tools.

n Lack o value reporting. Generally, the mediareport on only ine ective plans or those withinappropriate outcomes.

These reasons, as well as the need or acomprehensive review o the available data onrecognition program e ectiveness, inspired thisresearch and report.

What is the value o employee recognition?What are key elements o e ective employeerecognition programs? How does one determinethe ROI o employee recognition? It is ourpurpose to address these critical and timelyquestions by reviewing:

n Key theories o motivation (e.g., intrinsic and

extrinsic) which are most applicable to theworkplace and have been shown to providethe most linkage with job per ormance.(See Appendix 1.)

n The e ect or non-e ect o various types o rewards (e.g., tangible and non-tangible) uponwork motivation.

n Evidence o how increased levels o workermotivation can result in increased employeeengagement and improved job per ormance.

n Available methods or measuring the e ectso various types o rewards on job per or-mance and division/business per ormance(e.g., Return on Investment (ROI), Value onInvestment (VOI), and Li etime Employee Value1) as well as possible reasons or why theyare seldom used.

n Examples o e ective real-world rewardprograms—what are the common “best prin-ciples” that de ne them?

In today’s global work orce environment, there iscompetition or: 1) quantity o workers—the BabyBoomers are retiring and the generation behindthem is smaller; 2) quality o workers (e.g., work-ers possessing the skills or today’s economy) and3) value rom workers—the organizational valueobtained rom the work orce and individual work-ers. Recognition programs can help organizationsin all three areas—by creating a culture o recog-

nition that helps attract and retain top per ormersand, more importantly, by improving per or-mance by increasing an individual’s engagementwith his/her job and employer. Indeed, recogni-tion has been shown to be particularly e ective

or increasing productivity, pro t and customersatis action (Co man and Harter, 1999). Further,the value o recognition programs to an organiza-tion, like other parts o the rewards package (e.g.,compensation, bene ts, and incentives), can bemeasured despite their more qualitative nature.In act, a key nding that emerges rom ourreview is that recognition is among the best (andcertainly most cost-e ective) methods o improv-ing work motivation and employee engagement(see the Kanungo and Mendonca, Gallup, andCorporate Leadership Council studies discussedon the ollowing pages).

Introduction

1 Employee Li etime Value (ELTV) is a long-term metric o the nancial value o an employee to an organization.




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O course, recognition is but one method o rewarding workers. Others include pay, ben-e ts, incentives, development and careeropportunities and various orms o li e-workarrangements. Each reward is part o a totalincentive program that should, or optimum

results, be integrated with an organization’stalent management and business strategies.(see Figure 1 and Figure 2, and accompanyingtext or two related “Total Reward” models).Recent studies show that the di erent aspectso a total reward package may a ect individualper ormance, retention and business success indi erent ways (see, e.g., Harter et. al, 2002 andCLC, 2004). This is partially due to whether aworker views the reward as an entitlement (i.e.,part o their compensation) or as somethingspecial - aligned to and rewarded or actionsbeyond the ordinary.

A key to the success o the recognition compo-nent o the total rewards package is whether itmotivates workers in ways that increase the levelo engagement with their job and their employer.From the organization’s viewpoint, engagedworkers will increase their level o discretion-ary e ort (i the goal is per ormance) or desireto stay on the job when increased retention isthe goal. Building on this point, we highlightthroughout this report several commonly agreed

upon “best principles” or applying recognitionprograms. These principles, which should resultin the behavioral changes most o ten linked toheightened employee engagement, improved job per ormance and, ultimately, increased busi-ness value include:

n Use both ormal and in ormal recognitionto build a “culture o recognition” in theorganization.

n Provide a wide variety o recognitionrewards—realizing that what is a reward or

one person may not be or another.n Emphasize the recognition o increased

quality in per ormance, instead o simplyquantity o e ort.

n Recognize workers requently—sporadicrecognition may, in some cases, be worse thanno recognition.

n Reward activities that are linked to speci cbusiness objectives and/or desired culturalvalues.

n Measure the cost o the recognition rewardsystem and the bene ts gained –whetherthrough ROI or other methods.

The best way to implement a recognition pro-gram is as a rational, care ully ormulated programthat is based on sound theory and well integratedwith an organization’s business strategy—one thatrecognizes the behaviors most likely to positivelya ect an organization’s value. (Daniel, 2005.) Inaddition, a rational program considers workers’desires, using tangible or non-tangible rewards

that workers value, so that they will producevalue in return. (Rath, 2004; Hu , 2006.)

Most current recognition programs may havebeen established or good reasons - e.g.,improving the “culture o recognition” within anorganization. However, current studies nd thatmany organizations do not ully integrate thevarious aspects o the program with each otheror with business strategy and/or desired culture.The result is a ailure to capture the ull valueo worker recognition programs. (Hu , 2006;

WorldatWork, 2008a.) A major goal o this reportis to show the available evidence or the valueo an integrated recognition program, as well asexamples o how organizations are achieving thisvalue in practice.

This report includes our parts:

1. An exploration o the Structural Dimension o how recognition programs t into the largercontext o an organization’s total rewardpackage consisting o compensation, bene ts,incentives and other orms o tangible and

non-tangible rewards—including recognition.How do (or should) organizations integratethe di erent components o a total rewardpackage? What are each component’s goals?




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2. Discussion o the Functional Dimension o how recognition is part o a system linkedto work motivation, employee engagement,and ultimately to job per ormance andbusiness value. Recognition programswork when this linkage is understood and

leveraged, so that increases in recognitionresult in additions in the system’s output,business value.

3. A review o key research studies providingevidence that recognition, i properly applied,increases job per ormance and businessvalue. A range o studies exists that treatsrecognition and measures its e ectiveness invarious ways. Within that range, some studiessimply compare the nancial per ormance(or another metric o business value) o organizations that have recognition programswith those that don’t. Others take a morenuanced look, comparing organizations that

stress certain key aspects o recognizingworkers, such as whether they are beingrecognized or tenure or per ormance, andhow o ten they receive recognition. Thesestudies show a consistent correlation betweenutilizing recognition programs as an important

part o the total reward package and higherbusiness value.

4. A series o case studies that provide asnapshot o the range o programs currentlyemployed. These case studies provide real-world support or the ndings o the majorresearch studies - that organizations thatrecognize their workers will, on average,outper orm those that don’t. They can alsobe read as experiments that do somethingthat the surveys o multiple organizationsdon’t—provide evidence o a true cause ande ect relationship between recognition andincreased business value. 2

2 See the discussion o the several large-scale surveys showing that engagement and/or recognition is correlated to improvedoutcomes. The limitation o most (i not all) survey studies conducted at one period o time is that improved recognition orengagement could result rom enhanced organizational nancial per ormance OR both improved recognition and per ormancecould be the result o other, unmeasured actors.



The Value and ROI in Employee RecognitionCopyright © 2009 Human Capital Institute and Camden Consulting Group. All rights reserved.

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Recognition versus IncentiveRecognition: Acknowledging or giving special

attention to employee actions, e orts, behavioror per ormance. Recognition can include both

ormal and in ormal programs and supports busi-ness strategy by rein orcing certain behaviors(e.g., extraordinary accomplishments) that con-tribute to organizational success. Recognitionacknowledges employee contributions immedi-ately a ter the act, usually with predeterminedgoals or per ormance levels that the employeeis expected to achieve. Recognition awards canbe cash or noncash (e.g., verbal recognition, tro-phies, certi cates, plaques, dinners, tickets, etc.).(modi ed rom WorldatWork, 2008b)

Recognition is an a ter-the- act display o appre-ciation or acknowledgement o an individual’sor team’s desired behavior, e ort or businessresult that supports the organization’s goalsand values. Recognition involves day-to-day,in ormal and ormal recognition. (RecognitionPro essionals International’s Glossary o Terms)

Incentive: Any orm o variable payment tied toper ormance. The payment may be a monetary

award, such as cash or equity, or a non-monetaryaward, such as merchandise or travel. Incentivesare contrasted with bonuses in that per or-mance goals or incentives are predetermined.Generally nondiscretionary and can be paid atany time o the year. (WorldatWork, 2008b)

Forward-looking goals in which a reward iso ered as a catalyst or achieving a particular jobper ormance and/or standard. (Chang, 2004).

Reward versus AwardReward:

An item given to an individual or team ormeeting a pre-determined goal (Sometimescash-based) (Recognition Pro essionalsInternational Glossary o Terms)

Award:An item given to an individual or team in rec-ognition o a speci c accomplishment (usuallynon-cash) (Recognition Pro essionals InternationalGlossary o Terms)

An amount o cash, a prize, a symbol or anintangible reward given as a orm o recogni-tion. Awards can be in the orm o money, prizes,plaques, travel and public commendations.The payouts o sales contests usually are called“awards.” (WorldatWork Glossary)

Other Key TermsEmployee Engagement: It is the extent to which employees commit tosomething or someone in their organization - theamount o discretionary e ort they provide andhow long they stay with an organization as a

result o that commitment. (CLC, 2004)Return on Investment (ROI): For recognition programs, the ROI is the methodused to measure the bene t gained as a unctiono the cost o the program.

Total Rewards: The monetary and non-monetary returns pro-vided to employees in exchange or their time,talents, e orts and results. Total rewards involvethe deliberate integration o ve key elements(Compensation, Bene ts, Work-Li e, Per ormance

and Recognition and Development and CareerOpportunities) that e ectively attract, motivateand retain the talent required to achieve desiredbusiness results. (WorldatWork Glossary)

Defning the Landscape: Key Terms




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Value on Investment (VOI):Another approach to ROI that emphasizesboth the nancial and non- nancial impact o recognition. VOI includes all tangible and intan-gible bene ts and overall value ( nancial andnon- nancial) produced by a business initiative—

nancial and non- nancial. Too o ten the use o ROI ocuses exclusively on only the nancials anddoes not include the “so ter” measures o value,such as teamwork and cultural values.

Work Motivation:A set o energetic orces that originate bothwithin as well as beyond an individual’s being, toinitiate work-related behavior and to determineits orm, direction, intensity and duration. (Latham& Pinder, 2005)

n Intrinsic Motivation: an individual’s desire toper orm a task or its own sake. (Bénabou &Tirole, 2003).

n Extrinsic Motivation: contingent motivationto per orm a task coming rom anotherindividual or organization - usually throughmethods such as pay, promotion, praise and/or recognition. (Mwita, 2002).



BusinessStrategy

Reward

Strategy

Pay Levelsand Differentials

TotalRemuneration

TotalReward

PerformanceManagement

Non-FinancialRewards

JobEvaluation

PayStructure

PerformancePay

Market RateSurvey

EmployerBenefits

The Value and ROI in Employee RecognitionCopyright © 2009 Human Capital Institute and Camden Consulting Group. All rights reserved.

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Recognition, reward and/or incentive programs

are part o an organization’s total rewardstrategy, also re erred to as the compensationand reward system. The reward strategy isthe organizational plan or how to divide thework orce’s total reward among the variousreward types—in the way that best urthersthe business strategy. Figure 1 shows one typeo total reward system, illustrating the systemcomponents (including per ormance pay,bene ts and non- nancial rewards) as well asthe tools used to determine the various levels o reward (e.g., pay structure, market rate survey,

etc.). In this gure, the non- nancial rewards,which include the non-cash recognition systemsused by many organizations, are not linked to

per ormance management—a act that is true

o many organization’s recognition programs.However, one best principle that is emerging

rom current research on the role o recognitionin the workplace is that non- nancial rewardprograms that are tied to the quantity andquality o individual per ormance have thegreatest impact on improving overall businessvalue. (Stolovitch et. al, 2002).

Regardless, this model has the advantage o placing total rewards into the context o systemanalysis, allowing links (and eedbacks) between

the various components to be studied and mea-sured. It also provides reedom or exploringthe best way to move these pathways, therebyimproving the system’s e ectiveness.

The Place o Recognitionin the Total Reward Package

Figure 1. The Total Reward System - Model 1 (Sources: Armstrong, 1993; Mwita, 2002.)




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Other total reward models explicitly link per or-mance and recognition programs. WorldatWork’smodel, shown in Figure 2, uses ve elements o a “total rewards strategy” to link organizationalculture, business strategy and human resourcestrategy with increased talent attraction, motiva-

tion, and retention. WorldatWork’s descriptiono one element, per ormance and recognition ,explains the linkage between the two compo-nents, as well as the role o other actors that wediscuss later in this report:

Per ormance: The alignment o organizational,team and individual e orts toward theachievement o business goals andorganizational success. It includes establishingexpectations, skill demonstration, assessment,

eedback and continuous improvement.

Recognition: Acknowledges or gives specialattention to employee actions, e orts,behavior or per ormance. It meets an intrinsicpsychological need or appreciation o one’se orts and can support business strategyby rein orcing certain behaviors (e.g.,

extraordinary accomplishments) that contributeto organizational success. Whether ormal orin ormal, recognition programs acknowledgeemployee contributions immediately a terthe act, usually with predetermined goalsor per ormance levels that the employee isexpected to achieve. Awards can be cash ornoncash (e.g., verbal recognition, trophies,certi cates, plaques, dinners, tickets, etc.).(WorldatWork, 2008b)

Another View o Recognition - Recognition Pro essional InternationalRecognition Pro essional International (RPI) is a non-pro t organization dedicated to theunderstanding and promotion o e ective employee recognition. While not in confict with theWorldatWork de nition o recognition, RPI’s de nitions does provide a use ul comparison andevidence o the range o thoughts regarding recognition and recognition programs:

Recognition: Recognition is an a ter-the- act display o appreciation or acknowl-edgement o an individual’s or team’s desired behavior, e ort orbusiness result that supports the organization’s goals and values.

Day-to-Day Recognition encompasses a wide range o acknowledgement that is requent, ongo-ing and in ormal. It may consist o Intangible Recognition, Awards, Celebrations or eligibility orAwards or Celebrations to recognize behaviors that support organizational goals and values. Itmay include thank you notes or orms that employees give to one another or verbal praise. Allemployees can participate in this recognition, supporting recognition up, down and across theorganization.

In ormal Recognition singles out individuals or teams or progress toward milestones, achievinggoals or projects completed. Celebrations may include low-cost mementos or re reshments as away to celebrate achievements or outstanding positive behavior. It is less structured than FormalRecognition and reaches a larger percentage o the employee population.

Formal Recognition consists o a structured program with de ned processes and criteria linkedto organizational values and goals, a nomination and selection process and an Awards ceremonywhere employees receive public recognition and are presented with awards in a ormal setting.Generally speaking, it is an annual program and only a small percentage o employeesare recognized.

(Recognition Pro essionals International)




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Recognition Pro essionals International’srecognition de nitions point to many critical

actors, namely:

n E ective recognition programs rein orce behaviors that improve individual and team

per ormance, align with organizationalvalues and result in better overall companyper ormance. In system analysis parlance,this means that recognition programscreate a positive eedback loop in whichthe increase in desired behaviors enhancesrecognition that, in turn, will urtherincrease per ormance - potentially to itsmaximum level based on the abilities o theindividual’s abilit ies.

n E ective recognition programs can be ormal or in ormal and, in act, RPI’s best practices

or Recognition Strategy developmentstrongly recommends a “3-D” model asmost e ective. RPI’s 3-D recognition strategyincludes low cost day-to-day, ongoingin ormal and structured ormal recognitioncomponents. Almost all quantitativestudies discussed in this report highlightthe importance o increasing employeeengagement—to increase job per ormanceand, as a result, organizational per ormance.Many o these studies indicate that ormal

and in ormal programs that create a cultureo recognition can help to achieve thisengagement.

n E ective recognition programs provide timely and requent recognition. In act, one o themost extensive research studies conductedto date on the link between recognition andper ormance points to the need to recognizeworkers every seven days (see the Gallup

multi-year employee engagement study dis-cussed later in this report).

n E ective recognition programs link recogni-tion to corporate strategy, speci c goals andlevels o per ormance improvements. This isimportant: There is considerable evidence thatwhen recognition is misused or used in waysthat are not linked to desired behaviors it canhave no positive e ect and, in some cases, caneven decrease individual per ormance.

n E ective recognition programs include non-cash rewards. Considerable evidence existsthat non-cash rewards are o ten pre erable,both or increasing engagement (and resultingper ormance) and or maximizing the returnon investment or recognition programs (e.g.,non-cash programs o ten cost less, creating apositive cost-bene t relationship).

RPI uses seven practices as benchmarking stan-dards when evaluating organization’s recognitionprograms: recognition strategy, managementresponsibility, program measurement, commu-nication plan, recognition training, events andcelebrations and program change and fexibility.Similar standards have been identi ed by othergroups as well.

AttractMotivate

Retain

Employee

Satisfaction &Engagement

Business

Performance& Results

Total Rewards StrategyCompensation

BenefitsWork-Life

Performance & RecognitionDevelopment & Career

Opportunities

WorldatWork Total Rewards ModelStrategies to Attract, Motivate and Retain Employees

OrganizationalCulture

BusinessStrategy

HumanResourceStrategy

Figure 2. WorldatWork’s Total Rewards Model (WorldatWork, 2008b)




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In a large-scale 2004 study o employeeengagement, the Corporate Leadership Council(CLC) ound that only 11% o today’s work orcedemonstrate a very strong commitment totheir organization, while 13% are actively non-engaged—the poor per ormers who regularlyput in minimal e ort. In the middle, 76% aredescribed as being “up or grabs.” Elevatingthe engagement o both this great middleand the low per ormers can have a dramatice ect on individual per ormance and business

success. In act, the CLC ound that whenemployee engagement increases, so doesdiscretionary e ort and retention—by as muchas 20 percentile points or the ormer, and 87%

or the later.

What are the best ways or an organizationto increase employee engagement and reapthe awards o improved individual, team, andbusiness per ormance? As noted in the previoussection, all parts o the total reward package,

rom pay to non-tangible rewards, a ectengagement and per ormance. The remaindero this report ocuses on the recognitioncomponent o the total rewards model.

In theory, organizations reward workers or oneo two reasons:

1. To provide an incentive or the individual toreach a particular per ormance goal, or

2. To recognize a worker whose behaviordemonstrates a cultural value or has resulted

in a signi cant achievement—knowing thatthis will rein orce the behavior, meet theimportant human need to be appreciatedand convey the behavior’s value to theorganization.

At rst glance, the two approaches abovemay seem similar. However, the rst reason,incentive, ocuses on meeting pre-determinedgoals and is o ten considered part o theemployee’s compensation package ( orexample, a bonus or meeting sales quotas).In contrast, the second reason recognizesworkers whose behavior has added value to theorganization in ( requently) non-predeterminedways. Ideally, increased recognition will increasean organization’s employee engagement/motivation and, as the data in the next sectionshows, have a positive e ect on organizationalper ormance. I managers have properlyaligned individual worker job per ormancewith business strategy, the ultimate result o incentives and/or recognition should be anincrease in business value—in quantity and/orquality o goods or services.

But do incentives and recogniton have thesame a ect on worker per ormance? Figure 3describes a simple system model showing thevarious ways that recognition and incentivesa ect job per ormance—and is based on whatthe studies in the next section tell us about howorganizations implement recogniton and incen-tive programs, as well as the results they achieve.

From Recognition to Business Value:The Recognition—Motivation—Engagement—Job Per ormance—Business Value System




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This model highlights several key di erencesbetween recognition and incentive programs. Inaddition, it shows some speci c aspects o rec-ognition programs that help us explain why mostorganizations ail to adequately measure theimpact o recognition on job per ormance:

n Incentives are linked directly to job per-ormance. That is, they are established to

motivate workers to achieve a pre-determinedlevel o job per ormance. I workers behaverationally (in the classical “Adam Smith”capitalist sense) they will only improvetheir per ormance to the level necessaryto obtain the incentive. To urther increase job per ormance, new incentives must beo ered—increasing the cost o the program.

n Recognition rewards behaviors that arelinked to organizational culture, jobper ormance and business value a ter thebehaviors are expressed. It is not dependenton achieving a pre-determined level o jobper ormance. Recognition programs aimto increase both employee motivation andengagement so employees will sustain andincrease the expression o behaviors linkedto job per ormance.

n Positive Feedback exits in the well-designedrecognition program that is not oundin an incentive program—meaning thatthere is the potential or signi cant long-term increases in job per ormance romongoing recognition programs. Positive

eedback occurs when two or more system

components in a system are linked and whenan increase in any one component increasesthe other(s). (See Skyttner, 2005). In oursystem model, this means that increasesin the expression o positive job behaviorswill increase the amount o recognitionreceived, which then increases motivation/engagement which, in turn, urther increasesthe expression o positive job behaviors (the1—2—3—4—1 loop in Figure 3). In theory,this can result in job per ormance reachingan optimal point based on an individualworker’s maximum level o motivation/engagement and job skill/ability (notpictured in Figure 3)—as long as recognitionis requently and correctly given. Later inthe report we will examine both the degreeto which current research supports thishypothesis, as well as what type o uturestudies are needed to con rm it.

Figure 3. The Recognition—Behavior—Per ormance Relationship

Motivation

Recognition

Engagement

Job-Related Behaviors Motivation

IncentivesJob Performance

Business Value

1

2

3

4

III

III

IV

5

6




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n Indirect Link between recognition and jobper ormance is the primary reason why thevalue o recognition programs is o ten under-appreciated and, usually, not measured. Thewell-designed recognition program aims toimprove organizational culture and individual

workers’ behaviors. While the ultimate long-term result may be optimal job per ormanceand business value, these could require sev-eral cycles o the positive eedback loop toachieve. In contrast, the short-term resultso an incentive program—the bene t o increased short-term per ormance minus thecost o the incentive—can be quicker andeasier to measure.

Finally, as Figure 3 shows, the other part o jobper ormance is an individual’s job skill or abil-

ity. Most recognition programs are designedto increase the motivation/engagement parto the above system—so that workers per ormas near as possible to their current ability level.However, many organizations do use increaseddevelopment and learning opportunities as onepossible recognition award—allowing them topositively infuence both the motivation andskill/ability components o job per ormance:Per ormance = Motivation X Skill.

Motivation, especially as it is linked toper ormance in the classroom or the workplaceis a rich source o study by psychologists,sociologists, economists and educators. It isalso a source o a diverse body o theories thatattempt to explain what it is, as well as a source

o controversy on the best way to tap it. Thelatter arises rom the long-standing debateon the impact o external rewards on intrinsicmotivation. There are two main camps in thisdebate: 1) those that believe that externalrewards can actually decrease an individual’sintrinsic motivation to per orm and 2) thosewho believe that external rewards can havea positive or, at worst, no negative e ect onintrinsic motivation. We discuss this debateand, in particular, how it relates to recognitionprograms briefy in the next section and in moredetail in Appendix 1. However, this debate maywell be a “red herring” or the application o recognition programs. In act, there appear to bemany critical areas o agreement among scholarsstudying motivation, as well as those working toapply its concepts to work orce per ormance.




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There has long been disagreement on extrinsicreward programs’ e ects on intrinsic motivation,or an individual’s desire to per orm a task or its

own sake. This issue is relevant to recognitionprograms i or when:

n The orm o the award ( or example, tangibleversus verbal recognition) decreases long-termper ormance, or

n The work o high per ormers is adverselya ected by external reward programs.

Several researchers have argued that theexpectation o rewards or per ormance willdecrease the intrinsic motivation to per ormunder some circumstances such as the use o tangible rewards and, possibly, when speci cper ormance goals are not explicit (Deci, 1971,1976; Deci et al., 1975; Deci et al., 1989; Deciet al., 1999; Frey, 1997; Gagńe & Deci, 2005). Anexample o such research is a eld experimentconducted on entry-level workers at a NorthCarolina state hospital (Jordan 1986, see thesidebar). In contrast, others have argued thatthe weight o evidence indicates that, in mostcases relevant to the workplace, extrinsic rewardseither have no negative impact on intrinsic

motivation or the negative impact is seen only

in situations unlikely to occur during work-related activities (Cameron and Pierce, 1994;Eisenberger and Cameron, 1996; Cameron, et al,

2001; Cameron et al, 2005). See Appendix I ora more detailed discussion o this debate andwhat it may mean or work motivation in generaland recognition programs in particular.

While it is important to consider the possibilitythat a ew types o reward programs mayback re when it comes to building on theintrinsic motivation o some workers, it is criticalthat the potential adverse impacts are seenin context o an organization’s total rewardprogram. First, ew, i any, studies have lookedat the e ect o non-cash recognition programson increasing intrinsic motivation. Even Deciagrees that his work tends to show that verbal recognition (as opposed to tangible incentives)can increase intrinsic motivation with resultingincreases in per ormance (Deci, 1971; Deci etal., 1999). In addition, intrinsic motivation maynot be a signi cant actor in most workplaces.For most workers, their jobs are not activitiesthat they would do without reward (thede nition o intrinsic motivation) and, there ore,it is the relationship o extrinsic motivators (e.g.,

rewards) that will be most important.

Measuring the Value o Recognition

Can External Rewards Decrease Intrinsic Motivation?Jordan’s 1986 work, designed to test Deci’s hypothesis, divided workers into two groups:

1. Rewards contingent upon individual per ormance, and

2. Rewards not contingent upon individual per ormance.

Jordan conducted a survey to measure changes in intrinsic motivation was conducted at the starto the incentive program and three-and-a-hal months into the program. He ound two statisticallysigni cant results:

1. Subjects in the “Rewards contingent upon individual per ormance” group showed a small, butsigni cant, decrease in intrinsic motivation.

2. Subjects in the “Rewards not contingent upon individual per ormance group showed a small,but signi cant, increase in intrinsic motivation.

Jordan was quick to point out the limitations o his study— or example, e ects o other, uncon-trolled variables and limitation o the study to a particular level o worker at one state run hospital.However, the study does point out that, i the goal o a reward (recognition) program is to increaseworkers’ intrinsic motivation, simply linking rewards with per ormance may not be the answer.




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The remainder o this section outlines criticalndings o major studies that have examined

the link between recognition, motivation, jobper ormance, and business value. Each study’sdiscussion begins with a short description o how recognition was dealt with in the study—

or example, were speci c types o recognitionprograms identi ed and measured, or wasthe treatment limited to the comparison o organizations with and without any type o sel -identi ed recognition program? Studies thatexplicitly measured the e ect o recognitionprograms on some aspect o business value, aswell as the method(s) used to measure businessvalue, are noted.

Kanungo and Mendonca: 1988Synopsis

Analyzed all components o a total rewardpackage in one Cali ornia organization,including compensation and tangible andnon-tangible non-compensation components.“Recognition” was included and considered anon-tangible reward.

Measured business value achieved by eachreward, indirectly and qualitatively, by acomparison o the organization’s expectede ectiveness ( or each reward) and the actual

e ectiveness o each component (as deter-mined by employee survey).

As many o the studies that we review in thisreport make clear, the measurement o the costand, in particular, the bene ts (the increase in jobper ormance) resulting rom reward programs ingeneral and recognition programs in particularare not universally conducted—in act, a numbero studies show that only a minority o organi-zations measure the ROI o their recognitionprograms. This seems strange until one exploresthe history o the concept o how rewards arelinked to motivation and job per ormance.

The Kanungo and Mendonca study provides arelevant review o prior thinking and applicationo rewards to increase per ormance. In addition,it describes an early attempt at measuring bothcost and bene ts or one organization’s total

reward program. As such, it sets the stage orsubsequent studies and applications.

Kanungo and Mendonca studied the infuenceo changing views o intrinsic and extrinsicrewards’ relative impact on work per ormance

(Kanungo and Mendoca, 1988). As o the study’scompletion in the late 1980s, the researcherscontended that managers would routinelyconduct cost/bene t analysis ( or example,ROI) on an organization’s capital and operatingexpenditures, but not on compensationpackages—despite the act that compensationalpackages usually make up between 50% to 80%o an organization’s total cost.

Why this lack o concern over measuring thee ects o compensation packages? Accordingto Kanungo and Mendonca, the reason can betraced to behavioral theories, developed a terWWII, o the e ects o intrinsic and extrinsicrewards on per ormance. These theories,supported by a body o empirical researchcompiled mostly rom laboratory studies,contended that intrinsic rewards (such asincreased responsibility, autonomy, and eelingso accomplishment) were the real motivatorso work per ormance. Extrinsic rewards (pay,bene ts, working conditions, and so on) werebelieved necessary to prevent job dissatis action,

but had no measurable e ect on increasingmotivation or per ormance. This thinkingbecame the dominant work orce managementparadigm or decades, and managers came tobelieve that there was no reason to measure theROI or any extrinsic reward system, includingcompensation packages, bene ts, or some other

orm o tangible rewards.

This development’s practical result convincedmanagers that they could increase per ormanceonly by providing workers with “intrinsic rewardsthrough job redesign to include more respon-sibility, more autonomy, and more control”(Kanungo and Mendonca 1988). The researcherso ered two critiques o this approach:

n It led otherwise results-oriented managers tobecome “apathetic” to a major organizationalexpense, and




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n The ocus on the intrinsic-extrinsic distinctionignored the act that, regardless o whetherrewards are intrinsic or extrinsic, they willbe e ective work motivators only i they arevalued by an individual and expected to bereceived as a consequence o a behavior

linked to increased job per ormance.In an attempt to move organizations away romthe intrinsic-extrinsic ocus and toward the actualmeasurement o e ects o any aspect o thetotal reward package, Kanungo and Mendoncao ered an alternative approach, based on theexpectancy theory o motivation. It relies on the

ollowing concepts:

n Individuals will per orm i they believe thatthey have the necessary skill or ability.

n Workers must believe that rewards are contin-gent on per ormance.

n Workers must value the rewards.n A reward must be salient—that is, the reward

must be uppermost in the worker’s mind tosigni cantly a ect work motivation.

Kanungo and Mendonca tested the generality,and practicality, o the above approach with twoseparate empirical studies. The rst sought tounderstand how workers perceived 48 di erentwork rewards that included a mix o intrinsic and

extrinsic rewards. They ound that workers per-ceived rewards along three distinct dimensions:by the contingency to per ormance, value, andsalience o the reward; by whether the rewards areintrinsic (sel -administered); by rewards’ requencyand whether receiving them is not contingent toper ormance. A key nding emerged: The rstdimension, the one explicitly linked to expectancytheory, was the most important dimension orexplaining worker perceptions o rewards.

The researchers then developed an “actionprogram” o how to develop and measure thee ectiveness o reward programs:

Step 1— Develop a list o all rewards theorganization o ers its employees.

Step 2— Decide on the purpose o each reward.

Step 3— Conduct a survey o workers to nd outhow they perceive each reward.

Step 4— Examine the survey’s ndings and inves-tigate those rewards where the workers’and the organization’s perception o theper ormance contingency, value, andsaliency di er.

Step 5— Review, then re ormulate and/or rede-sign the reward system in light o steps1– 4. This can include changing rewardprograms to increase the contingency,value, and/or saliency o the program

or workers ( xing problems Step 3),developing better ways to communicatethe various reward programs’ purposes,( xing problems Step 2), or redesigningthe mix o programs in the total rewardpackage ( xing problems Step 1).

To test their action program, Kanungo andMendonca examined the e ectiveness o thereward program or a group o senior managersat a Canadian corporation. For each o the25 rewards the corporation used (ranging rompay to non-compensation rewards such asparticipation in decision-making and, notably

or this report, recognition) the researcherscompared perceptions o the corporation’scompensation specialist with a survey o workers.Speci cally, the compensation specialist wasasked, and workers were surveyed about:

n The importance o the reward or improvingretention, per ormance and development(growth).

n The level o value and awareness (salience) o the rewards.

Organizational and worker scores werecalculated or contingency, saliency, value,and intended e ect ( or the organization) andactual e ectiveness ( or workers), then placedon the same scale or comparison. Inclusiono the relative cost o each program (that is,percentage o the total reward package) wascritical to the analysis: For the organization, thismeant that the per ormance contingency valuewas weighted by the cost o the program, withthe more costly programs presumably linkedto a higher organizational intended e ect. Butdid the actual e ect o each reward programmeasure up to what was intended?




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Only three o the 25 programs delivered anactual e ecthigher than the intended e ect:n Pay—the prime reward involving money or in-

kind paymentsn Personal challenge—a non-tangible rewardn Participation in decision-making—a non-tangi-

ble reward

The three above rewards’ higher motivationale ects can be traced to workers ranking theirreward contingency higher than the organizationdid, providing an ROI (in qualitative terms, atleast) higher than expected. However, or theother 22 rewards (including “Recognition”),the actual e ect on workers was lower thanthe organization’s intended e ect. For theseprograms, Kanungo and Mendonca’s action plancalled or modi cation so that the actual e ect(that is, the bene t gained by the organization)could be increased.

This study highlights several critical elementso both the implementation and evaluation o reward programs, including those associatedwith recognition, that are supported by morerecent studies and that should orm the basis orcurrent studies and applications.

First, it cannot be assumed that any part o a total reward program is having the e ect

intended by management. This needs to becon rmed by measuring the program’s actual e ects. Kanungo and Mendonca did this bymeasuring workers’ perceptions o the rewarde ects. While surveying worker attitudes abouttheir perceptions is important, it does notmeasure actual gains in per ormance. As thecase studies highlighted in this report show,improvements in per ormance ( nancial orotherwise) achieved a ter the implementationo a rewards program can be measured, even i most organizations currently don’t do so.

Second, non-cash rewards are important to work-ers and will result in increased motivation andper ormance. While pay had the largest actuale ect o all rewards—and an e ect ar greaterthan the organization’s intended one), two non-tangible rewards were the only other two rewardprograms in which the actual e ect exceededthe intended e ect.

Unlike Kanungo and Mendonca’s 1988 work,most major studies exploring the link betweenrecognition (and other components o the totalreward package) and business value have notlooked in-depth at one organization. Duringthe last decade many survey-based studies

o various numbers o organizations haveemerged, with the objectives o determiningthe levels o employee engagement amongorganizations, how those levels are changedby talent management practices (includingrecognition) and, in many cases, whetherdi ering levels o employee engagementand/or the use o recognition correlates withimproved business value.

Gallup Research: 1999 to PresentSynopsis

A series o large-scale internal surveys (someaimed at a range o specifc industry types)determined the extent o use o 12 managerialtools that previous Gallup research determinedwere most highly correlated to positiveemployee engagement. One o the 12 was

requent recognition .

Estimates ( or each organization surveyed) oproductivity , employee turnover , proft , andcustomer satis action measured business value

quantitatively. Researchers then determinedthe amount o correlation between level oemployee engagement tools and business value.

For more than 30 years, the Gallup organizationhas worked to measure the changing levels o employee engagement, as well as to determinethe key actors that managers can use toincrease engagement. This research led Gallupto develop the Q12: “a 12-item survey designedto measure employee engagement” (GMJ2006). Survey items are in the orm o questionsthat employees respond to on a “stronglyagree” to “strongly disagree” scale. The ocusis on aspects o talent management under amanager’s control, including pay. The surveyincludes the statement, “In the last seven days,I have received recognition or praise or doinggood work” (Harter et al. 2002). This wordingis critical, or it highlights two key ndings o Gallup’s 30 years o work: that recognition and




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praise are drivers o employee engagement,and that recognition works best when o ered

requently. In this report’s examples o e ectiverecognition programs, one key principle thatclearly emerges is that the best programsare those combining ormal and in ormal

recognition, and providing them requently,thereby creating a culture o recognition thatbetter motivates people to increase theirper ormance.

Gallup also conducted several meta-analysis(statistical analysis o many independent studies)surveys across several types o industries andamong separate business units within organiza-tions. Gallup ound that only 29% o workers,as o their 2004 survey, are “engaged,” while54% are “not engaged” and 17% are “actively

disengaged.”3

Gallup estimates the cost o thisdisengagement to the national economy at $300billion a year.

In contrast, business units within organizationswith higher-than-average levels o engagement(de ned here as in the top quartile o all 12engagement responses) nd success at ourdistinct types o business outcomes(in comparison with business units in thebottom 25%):

Productivity —50% higher success rate

Employee Turnover —13% higher suc-cess rate (less turnover)

Proft —44% higher success rate

Customer Satis action —50% highersuccess rate. 4

Watson Wyatt—2001/2002 Study:The Business Case or SuperiorPeople ManagementSynopsis

Calculated composite “Human Capital Index(HCI) Scores” based on multiple HR practices

or more than 2,000 companies.

Change in HCI Scores rom 1996 to 2001 corre-lated to company’s fnancial per ormance (totalreturns to shareholder).

The results o Watson Wyatt’s HCI study clearlyshow that better human capital management (asmeasured by a composite HCI Score) correlatesto improved nancial per ormance:n Low-HCI companies

21% total return on shareholder valuen Medium-HCI companies

39% total return on shareholder valuen High-HCI companies

64% total return on shareholder value.

While recognition was not a speci c talent man-agement strategy highlighted, the study did showthat improvements in practices related to “TotalRewards & Accountability” (one o ve categorieso practices making up the HCI Score) producedthe largest gains in nancial per ormance.Companies making signi cant improvements in

this category increased nancial per ormance by16.5%, primarily through improving bene ts (a7.3% gain), linking pay to per ormance (a 6.3%gain), and establishing a better linkage o per-

ormance with promotion, development, andterminating “chronic nonper ormers.”

The lack o mention o “recognition” in thisstudy highlights the act that the importance o recognition programs as a ormal part o talentmanagement is relatively new. Regardless,this study demonstrates that improving talentmanagement can produce measurable gains in

business value, and that the major tool or thesegains is through better application o the totalreward package.

3 The level o engagement estimated by this Gallup survey is greater than the 11% “commitment” level ound by the CorporateLeadership Council (CLC) discussed at the beginning o this report and, again in subsequent pages. This di erence is due mostlikely to variation in the wording o the questions: or example, the 11% in the CLC study represented highly engaged individuals,while the Gallup study allowed or a broader level o engagement. Regardless, the two studies do agree that the vast majority o workers are not highly engaged with their jobs.

4 For a detailed explanation o how the analysis comparing employee engagement levels with business success was determined,see Harter et. al. 2002.




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Incentive Research Foundation(IRF)—Incentives, Motivation andWorkplace Per ormance Research& Best Practices, 2002(Stolovitch et. al, 2002)Synopsis

Meta-analysis o 45 research studies (and ol-low-up survey o organizations) determined thelink between categories o tangible and non-tangible incentives and job per ormance.

Business value was not directly measured butwas implied rom increases in individual andteam job per ormance.

Study shows how recognition was requentlygrouped with incentives in early studies o thea ects o rewards on per ormance.

This study consisted o a meta-analysis o 45 previous peer-reviewed research studies(conducted between 1965 and 1998) examiningthe link between incentives, motivation and job per ormance. It is important to note thatrecognition programs were not included in theanalysis as a speci c type o reward systembecause, as the authors noted, as o 2002 “noresearch experiments o ered usable data onrecognition” (Stolovitch et. al, 2002). Instead,recognition was considered as a type o non-tangible incentive and not as a separatecomponent in the total reward package.

Importantly, the authors concluded that thee ects o non-tangible incentives in general, andrecognition in particular, required more research— some o which has been conducted morerecently and is summarized below. 5 We mentionthis study to show how recognition was o tengrouped with incentives as recently as 2002, bothby organizations implementing programs andby researchers studying them. In act, as otherstudies summarized in this section show, recog-nition programs can and should be treated as aseparate component o the total reward packageand, when done so, show a highly signi cantpositive e ect on job per ormance (through therecognition—motivation/engagement—job per-

ormance system discussed in a prior section).

Incentive Federation Inc.: 2003Synopsis

Recognition programs treated as one omany non-compensation reward programs.No specifc type o recognition program

mentioned.Business cost o programs measured by costo rewards used. No measure o increasedbusiness value reported.

In 2003 the Incentive Federation Inc.commissioned a survey o 540 businessexecutives whose organizations currently usedmerchandise and travel rewards to increasework motivation (Estell 2003). This study oundthat reward programs could be divided into twogroups based on their objectives:n

Consumer promotions, sales incentives, anddealer incentives used to increase or maintainsales, increase market share, and/or buildcustomer loyalty, and

n Non-sales programs (including recognitionprograms) used to improve morale, employeeloyalty, and teamwork (that is, employeeengagement).

A large majority (73%) o survey respondentschose “build morale” as a reason orimplementing non-sales ( or example,recognition) programs, while another 60% also

chose “build employee loyalty/trust.” Thisshows that organizations in this study usedrecognition programs to a ect positive jobbehaviors, a critical part o the recognition—behavior—job per ormance system that wediscussed previously.

In addition, there was a major di erence in costbetween surveyed incentive and recognitionprograms, with those recognition programsdesigned to increase motivation havingsigni cantly lower costs than incentive programs:

Average cost per person o travel awards orprogram typen Sales incentives $1,473n Dealer incentives $1,467n Non-sales recognition/motivation $980

5 The authors ound no evidence to support the impact o intangible incentives – including recognition or employee o the month.However, as noted in the text, they did not consider the possibility that recognition could be linked to tangible rewards. In addi-tion, as discussed in a previous section, employee o the month and similar types o awards (the type they examined) are morelikely to a ect retention o employees and not per ormance.




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Taken together, these two ndings indicate thatthe surveyed organizations understood thatrecognition was not only a cost-e ective toolto motivate workers, but an e ective tool topositively a ect the very behaviors most likely tobe linked to improved job per ormance.

More than hal (57%) o respondents also agreedthat most o their employees considered cashbonuses to be part o their compensationpackage and, as such, cash has less impact onincreasing “employee morale” or loyalty thanmerchandise and travel awards.

Finally, the lower cost o non-sales recognition/motivation programs can prove extremelyvaluable to organizations in tough economictimes. Even in 2003, study respondents reportedbecoming increasingly “cost conscious” aboutreward programs.

Corporate Leadership Council(CLC): 2004Synopsis

Various aspects o recognition and rewardswere shown to be among top “levers” thatan organization and/or individual managersmay use to increase employee engagement.Specifc types o recognition programs are notidentifed.

Demonstrated a signifcant link betweenincreased employee engagement and individual

job per ormance.

A 2004 CLC study surveyed more than 50,000sta , managers, and executives rom 59 di erentorganizations, working in 27 countries andrepresenting 10 di erent industries. Previously,we discussed the CLC study’s initial nding

that increasing an employee’s engagement canimprove their job per ormance score by as muchas 20 percentile points. The study was designedto discover the key “levers” that best increaseemployee engagement and, through that,increase both per ormance and retention

(CLC 2004).

It identi ed top levers (out o 300 potentials)or increasing workers’ discretionary e orts

and “intent to stay.” These top levers wereassociated with six categories o organizationaltalent practices: Organizational culture andper ormance, manager characteristics, learningand development opportunities, day-to-day workcharacteristics, areas o onboarding ocus, andsenior executive team qualities. “Recognitionand Equity” and “Recognizes and Rewards

Achievement” were among the top levers(across all six talent categories) or determininghigher-than-average retention rates. In addition,“Recognizes and Rewards Achievement” wasalso one o managers’ top rated tools orincreasing discretionary e ort rom workers.

The CLC study demonstrates that employeeengagement can be increased in many ways,including the creation o a recognition culturein the organization. It is important to note thatthis study looked at the general eatures o an

organization’s workplace culture, not the speci cprograms or tools that create that culture. I recognition is thought o as a tool, and not justa cultural attribute o a speci c workplace, it iseasy to envision recognition programs beingused to rein orce and strengthen each o thekey workplace cultures listed above. This againpoints to the need or more care ul researchon how a “culture o recognition” improves

employee engagement and per ormance. 6

6 The CLC’s conclusion that employee engagement is critical to an organization’s bottom line is supported by a 2006 nding by theRussell Investment Group, which ound that, on average, the members o the Fortune magazine’s “100 Best Companies to WorkFor” had achieved a 200.6% cumulative return on pro ts rom 1998-2005 compared to an average o 45.6% or the S&P 500.




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Towers Perrin Global Work orceStudy: 2007–2008Synopsis

Surveyed 90,000 workers in 18 countries onvarious workplace issues, including the level oengagement that workers elt with their workand organization.

Correlation o engagement levels withorganizations’ fnancial data showed that orga-nizations with high engagement levels hadstrong positive fnancial results, while thosewith low engagement levels had negativefnancial results.

Whether motivation is intrinsic or extrinsic,there is little doubt that rewards can be used

to increase motivation and improve engage-ment between workers and their jobs. In turn,the organization bene ts rom increased value.Towers Perrin’s 2007-2008 Global Work orceStudy, which surveyed 90,000 employees in 18countries about a range o topics, including the

actors that drive their engagement with theirwork, con rms this point.

When researchers compared survey resultswith nancial data o the surveyed organiza-tions, they ound that companies with highemployee engagement had a 19% increase inoperating income and a 28% increase in earn-ings per share. In contrast, companies with pooremployee engagement scores had decliningoperating incomes and an 11% drop in earn-ings per share. (These results corroborate the

CLC and Gallup studies showing a link betweenhigher employee engagement levels andincreased business value.) Most important orthis report, the Towers Perrin study also showedthat workers in organizations with higher busi-ness value were signi cantly more likely (68%,

versus 49% or underachieving organizations) toagree that their “immediate manager recognizesand appreciates good work.”

Human Capital Institute (HCI) andIBM Talent Management Study: 2008Synopsis

Surveyed 289 U.S. publicly traded companieson level o implementation and/or e ectivenesso 30 talent management practices, includingseveral related to building employee engage-

ment and providing incentives.

Correlations o survey fndings and fnancialper ormance showed that an increased ocuson building employee engagement and align-ing incentives with business strategy was mostimportant in separating fnancial over-per orm-ers rom underper ormers.

Another recent study by HCI and IBM supportsthe correlation between employee engagementand nancial success. In this study, 1,900respondents rom various industry types weresurveyed and asked to evaluate the ull rangeo their organization’s talent managementprocesses, including a series o questionsdealing with motivation and development. Inaddition, researchers collected nancial data

How Engagement Affects Financial Performance—One-Year Study

12-month change in operating income 19.2% -32.7%

12-month net income growth rate 13.7% -3.8%

12-month earnings per share growth rate 27.8% -11.2%

Companies with high employee engagement Companies with low employee engagement

40% 30% 20% 10% 0 -10% -20% -30% -40%

—Towers Perrin Global Workforce Study 2007–2008




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or a subset o the surveyed organizations (289publicly traded U.S. companies) to determinepossible correlations between nancial successand improved talent management. Companieswere categorized as over-per ormers and under-per ormers—those above the median or net

change in operating pro ts rom 2003 to 2006and those below the median, respectively.

O the 30 talent management practices sur-veyed, two in particular—engagement andincentives—were ound to separate nancialover-per ormers rom under-per ormers. In

act, about twice as many over-per ormers thanunder-per ormers strongly agreed that theirorganizations were ocused on two key practices:

n Understanding and addressing work orce atti-tudes and engagement, and

n Aligning employee and workgroup incentiveswith appropriate business goals.

Watson Wyatt 2008/2009 GlobalStrategic Rewards Report—ThePower o Integrated Reward andTalent Management: 2009Synopsis

Survey, conducted in May 2008, measured1,389 organizations in 24 countries on the level

o integration between rewards and talentmanagement.

Correlated survey results with organiza-tions’ fnancial per ormance to distinguishbetween high-per orming and low-per ormingorganizations.

There is an important di erence between thisstudy and the 2001/2002 Watson Wyatt researchdiscussed previously: The deployment o “recog-nition programs” is considered one o the ninedistinguishing elements o an integrated rewardand talent management system, with another

being the linkage o individual and organizationresults to rewards (a major theme in this report). 7

Speci cally, Watson Wyatt ound that companiesemploying a majority o these nine tools canexpect the ollowing results:

n 20% less likelihood than other companies toexperience problems attracting, and 33% lessproblems retaining, critical-skill employees.

n 25% less likelihood to have problems attract-ing, and 18% less problems retaining,top-per orming employees.

n 18% greater likelihood to be a nancially high-per orming company.

WorldatWork—2008Synopsis

Surveyed 554 HR pro essionals to determinethe extent and types o recognition programsused. 89% o organizations surveyed had imple-mented some orm o recognition program with“length o service” being the most common,

ollowed by “above and beyond per ormance.”

Results reported that only 8% o organizationsmeasure any orm o ROI o recognition pro-grams, but the study did not determine i ROIwas higher or particular types o recognitionprograms that are measured.

Based on a survey o 554 HR pro essionals,conducted in December 2007 and early 2008,WorldatWork reported on current trends inemployee recognition. The organization oundthat, as in earlier surveys conducted in 2002,2003, and 2005, employee recognition programsare still common, with 89% o surveyed organiza-tions stating that they had employee recognitionprograms in place. (This percentage is the sameas that ound in the 2005 survey, which wasslightly greater than ndings in 2002 [84%] and2003 [87%]). These ndings indicate both a high

7 Watson Wyatt considered the e ective utilization o a majority o the ollowing nine practices to be a sign o an integrated rewardand talent management system: 1) De ning an organization-wide employee value proposition (EVP) or attraction, retention, payand talent management; 2) Managing and designing programs according to an organization-wide total rewards philosophy; 3)Per orming ormal work orce planning activities that optimize the supply o talent versus demand; 4) Leveraging competencymodels across recruiting, career management and pay activities; 5) Facilit ating healthy work/li e balance and taking measures tomoderate employees’ levels o work-related stress; 6) Linking employee per ormance goals to the business, and e ectively com-municating per ormance expectations and results to employees; 7) Leveraging total cash rewards through di erentiation o meritincreases and annual incentive awards; 8) Linking individual and organizational results to rewards; and 9) E ectively deploying rec-ognition programs.




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level o use o employee recognition programs;as well as the act that the adoption o programsby today’s organizations is stabilizing.

Respondents described the types o employeerecognition study they use:

Length o service..........................................86%

Above and beyond per ormance ............... 79%

Peer to peer .................................................42%

Retirement ....................................................41%

Sales per ormance .......................................38%

Employee o the year, month, and so on ...32%

Programs to motivate speci c behaviors ...25%

Sa ety per ormance .....................................25%

Suggestions/ideas .......................................24%

Major amily event .......................................19%

Attendance ...................................................16%

These results clearly show that “Length o service” and “Above and beyond per ormance”are the two most-o ten used employeerecognition programs. They also demonstratethat many organizations have implementedmultiple types o recognition programs beyondthose two. This is important because, asdiscussed earlier, other research has shown that

an integrated employee recognition system,comprised o di erent programs targeted orspeci c goals ( or example, improved sa ety,increased per ormance or higher retention), isthe best way to achieve measurable results. I increasing per ormance is the program goal,then “Length o service,” which is linked toimproving worker retention, not per ormance,is not the tool o choice. Organizations need toidenti y what they want to improve, then choosethe recognition program best designed or thatelement o talent management or per ormance.

The survey also uncovered interesting actsregarding the integration o employeerecognition programs with an organization’sbusiness strategy. Only 48% o organizationshave a written strategy, as advocated by RPI’sbest practices, that outlines important actorssuch as why the programs were created and

what the program’s goals are. This is troubling;it implies that there may well be a lack o clarity, both by program implementers andamong employees, about what the programsare supposed to achieve—a key part o linkingany employee recognition program with

worker per ormance and increased value tothe organization. In addition, the lack o awritten strategy provides evidence that theemployee recognition strategy may not be aswell aligned with business strategy as surveysrespondents believed—or, at least, that thereis little in the way o evidence to support theirbelie . However, on a positive note, 96% o organizations with a written strategy believe thatit is aligned with their business strategy.

The survey also shows that organizations

give many di erent reasons why they haveimplemented a recognition program:

Create a positive work environment .......... 77%

Motivate high per ormance ........................71%

Create a culture o recognition ................... 69%

Recognize years o service ...................... ....69%

Increase morale ....................... ..................... 68%

Rein orce desired behaviors ....................... 61%

Support organizational mission/values ......55%

Increase retention or decrease turnover ....51%Support becoming/remaining anemployer o choice ......................................43%

Encourage loyalty ........................................42%

Provide line o sight to company goals .....26%

Support a culture change ........................ ....20%

Other ...............................................................2%

The report also includes a snapshot o rewardtypes used in today’s recognition programs.

The most popular recognition symbols includecerti cates and plaques, used by 78% o organizations, ollowed by cash bonuses, usedby 60% o organizations. Gi t certi cates (51%)and company logo merchandise (46%) ollow inpopularity. Perhaps not surprising, given today’seconomy, travel rewards are only used by 15% o organizations, down rom 21% in 2005.




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The WorldatWork survey shows that recogni-tion is most commonly given one-on-one bythe employee’s manager (63% o organizations),or presented at special events (57%) or at sta meetings (38%). Some organizations (28%) usean intranet announcement, while 8% mail the

reward to the recipient.

Survey ndings most relevant to this report relateto what was discovered about organizations’measurement o success o employee recogni-tion programs. The study ound that “employeesatis action surveys” are the leading method,used by 43% o organizations. Other metricsused include numbers o nominations, turnoverrate, usage rates, productivity, and customersurveys. Only 8% o surveyed organizations useany orm o ROI to measure the success o an

employee recognition program. Additionally,36% o organizations state that they do notmeasure the success o their programs.

Survey ndings also point to some currentproblems with e ectively implementingrecognition programs, namely the act that81% o organizations say that they do not haveany ormal training programs or managers onhow to carry out the programs. This likely leadsto inconsistently managed programs acrossorganizational departments.

The studies summarized here provide acritical body o evidence demonstrating thelink between recognition and employeeengagement—and between employeeengagement and various measures o jobper ormance and/or business values. However,

except or the WorldatWork study, these studiesdo not provide much evidence o the range o recognition programs used or o actual gainsin business value that occur a ter a programimplementation. In act, as we discuss at the endo this report, the most urgent needs in the studyo the e ects o recognition programs todayare detailed studies: research along the lines o the studies linking employee engagement to

nancial per ormance that examines how theimplementation o speci c types o recognitionprograms a ects various measures o jobper ormance and organizational nancialper ormance. Until those studies are conducted,what remains are descriptive examples o somereal-world recognition programs, such as thosein the next section, that provide only some o this needed in ormation.




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Scotiabank8

In 2007, Scotiabank (the Bank o Nova Scotia), aleading Canadian nancial organization, receivedsome recognition o their own when they werechosen the 2007 Best in Practice by RPI. Thekernel o Scotiabank’s success can be seen inthe late 1990s, when most banks were ocusedon new technologies—particularly those relatedto customer sel -service. Bucking this industrytrend, Scotiabank chose to ocus on personalcustomer service, instead placing an emphasis onexcellent customer service by their employees.To help create this customer-centric businessstrategy, Scotiabank implemented an employeerecognition program that di ered markedly romits earlier incentive-based programs.

Scotiabank’s original incentive plan ailed tobuild the desired customer service culturebecause o several problems, both in the

ocus o the program and in how it was carriedout. First, instead o being an integratedprogram consistently implemented across alldepartments, the original design utilized a mixo paper-based programs o ered to workerssimultaneously through regional divisions and

unctional areas. More important, instead o rein orcing desired customer service behaviors—by recognizing those workers who demonstratedthose behaviors—the original program onlyrewarded improvements in speci c laggingbusiness indicators ( or example, measured salesand nancial results). While this provided readilymeasurable indicators or capturing the increasein program value, it was not the improved value(better customer relations) key to Scotiabank’sbusiness strategy. Even worse, most o the earlyprogram only rewarded managers and ignored

non-managerial sta —the very people with themost customer interaction.

Scotiabank, working with a marketing servicesrm, developed a new program with the

intent o recognizing and rewarding their bestemployees and, at the same time, increasing thestrength o customer relationships. The “ScotiaApplause” program initially was implemented inthe division with the most customer interaction,the bank’s retail branch network. Instead o being made up o many separate programs,each with a di erent ocus, Scotia Applause isa web-based program integrated across all joblevels—and with the single ocus o improvingcustomer service by recognizing and rewardingrelationship -building behaviors. 9

The new program did not take the place o , orduplicate, per ormance-based compensationprograms. Instead, it intends to use a new set o quantitative and qualitative metrics to measurethe achievement in building a better customerservice environment. These metrics includeparticipation measures:

n Program participation and registrationpercentages

n Tra c onto the program websiten Reward orderingn Redemption analysisn Most important, behavioral analysis

o engaged and disengaged programparticipants at speci c periods o time.

This last participation metric, conducted in partthrough employee surveys, is linked to cus-tomer satis action surveys, which or a programdesigned to improve customer relations, is the

Case Studies: Using Recognition Programs toImprove Specifc Business Functions

8 From: Scotiabank – Realigning Employee Recognition to Business Strategy Reaps Measurable Rewards , Recognition Pro essionalInternational White Paper, 2007 Best Practice, Best in Class Recipient.

9 The program consists o a combination o individual and team recognition through a our-tiered program with daily, monthly, quar-terly, and annual per ormance recognitions, goals, and evaluations. The program rewards points that can be redeemed or a widevariety o gi ts, with the intent that everyone will nd something o value.




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bottom-line measurement o program success.A 2005 Scotiabank study showed high positivecorrelation between high levels o participa-tion in the recognition program, high employeesatis action scores, and high customer loyaltyscores. This correlation metric is Scotiabank’s

method o estimating ROI or the programand exempli es the importance o tailoringthe method o capturing value returned to theorganizational goals or the program. For whilethe metric does not provide an explicit cost/bene t measurement (as is common or ROI),it does measure how strongly participation inthe program is linked to improving long-termcustomer loyalty: the overriding purpose o theprogram. 10 Ideally, in the uture, Scotiabank willbe able to quanti y how much better customerrelations are impacting the bank’s nancialbottom line as well.

Delta Airlines 11

“I we take care o our employees, they will take care o our customers”

—C. E. Woolman, ounder o Delta Airlines

Delta Airlines, like Scotiabank and otherorganizations, has had many recognition andrewards programs over the years. However, likeearlier incarnations, they were a mix o ormal

and in ormal programs, ragmented acrossworker type and organizational divisions, andmost critically, not aligned with the company’sbusiness strategy.

Delta created a new program, My Delta Rewards,that seeks to better integrate existing andnew reward and recognition programs intoone, branded program that drives measurablebusiness results. My Delta Rewards is run on a

points-based internet per ormance plat ormaccessible to all employees and includes:

n Length o Service Awardsn Retirement (personalized retirement awards)n SPOT Recognition, awarded or “extra-mile”

e ortsn An enterprise-wide program divided into

two parts: Gaining Attitude and CommunityEngagement, a program that rewards workers

or community volunteer involvementn Business Unit Programs designed to drive new

revenue, measurably cut costs, ensure compli-ance, and support other key business metrics

n Chairman’s Club, which annually recognizes thetop 102 employees based on determinationand dedication

Delta’s stated goal is to provide recognition in ourper ormance categories that drive the company’sstrategy: cost savings, customer service, opera-tional excellence, and revenue growth. In addition,one explicit objective o the program is to createa culture o recognition by ensuring that eachemployee is recognized at least our times a year.

According to the white paper written by Delta’svendor or recognition programs since 2007,Delta extensively tracks the use o their rewardsand recognition system. Also, unlike the major-ity o organizations (as reported in the 2008WorldatWork study discussed earlier), Deltasays they measure the program’s ROI via ananalysis that combines data collected romthe web-based plat orm with in ormation rom

ocus groups, surveys, and eedback. The whitepaper states that the resulting ROI reports doc-umented a 564% return on investment or therecognition program. 12

10Measures o customer loyalty and satis action are also key components o non-ROI measures o employee value, such as Value onInvestment (VOI) and Employee Li etime Value.

11From Delta, 2008 RPI Best Practices Recipient, white paper published by Diamond H Recognition, 2008, and Stephanie Merchiore,“Giving Recognition a Li t,” HR Today , September 2008..

12The Diamond H Recognition white paper does not discuss the time rame or the measured ROI or any other actors that may haveinfuenced the estimate. Also, neither the data nor methodology used to calculate ROI is reported.




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MGM13

In 2001, the Las Vegas-based MGM Grand begana major expansion o new properties. Leadersrealized that managing this expansion wouldrequire an increase in employee engagement.

To achieve this, the chosen primary methodwas to enhance the organization’s employeerecognition program.

At rst, the recognition program was consideredmore o a gimmick, at least as viewed by workers,than a real method to increase employeeengagement, job per ormance, or business value.

The new program design, and subsequent yearlymodi cation, was created to align to businessstrategy. It began with senior leader buy-in asevidenced by the approval o a yearly budget o

$500,000. Major program elements include:n Streamlining the MVP award to ensure that

it promotes the core values and service-standards o customer service—the mostimportant job per ormance in the hospitalityindustry

n Communicating new recognition programgoals during managers’ meetings and“preshi ts,” 10-15 minute sessions prior to thestart o work in which managers provide ace-to- ace eedback, in ormation, and recognition

to “more than 9,200 employees by 700supervisors and managers in more than 250departments.”

n Both tangible (gi ts) and intangible (publicrecognition) recognition provided; together,they have little or no cost.

n Program success depends upon managersand supervisors providing requentrecognition to employees, providing aconcrete example o the results o the Gallupstudy discussed above.

The importance o the recognition programto MGM is highlighted most clearly in theslot department. The recognition programmotivated slot department workers to increasecustomer membership in the “slot club” rom1,052 in 2004 to 1,582 in 2005. This is but one

example o nancial gains achieved by theMGM Grand since the introduction o therecognition program. In act, the organizationhas gone out o their way to measure potentialgains in business value:

n Tracking individual productivity in eachdepartment.

n Employee satis action surveys that show anincrease in overall employee satis action rom87.5% in 2004 to 90.3 in 2005.

n A 2006 turnover rate o only 11.4%— ar lessthan the hospitality industry average.

n An increase in annual revenue rom $714million in 2003 to more than $1 billion in 2005.

As with most such case studies, it is impossibleto preclude the possibility that some or all o the nancial gains described above are due to

actors other than the recognition program—or example, the operational expansion that

motivated the enhancement in the recognitionprogram it the rst place. However, thereis enough evidence o gains in employeeengagement, not correlated to any changesin other aspects o the MGM’s total rewardpackage, to demonstrate the likelihood thatthe improved links within the “recognition/rewards—employee engagement—jobper ormance—business value” system areat least among the potential causes o the

nancial gains, and certainly those links withthe smallest investment.

13From Christi Gibson, “MGM Grand: How Employee Recognition Impacts the Bottom Line,” Workspan , 2008.




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It is important to note that these case studiescome with their own limitations. They all arebased, to varying degrees, on the organization’sor recognition program vendor’s descriptiono their own program, implying a signi cantdegree o subjectivity in the discussion o

the program and its results. Also, none o the reports o ROI (or other measures o value gained) provide su cient details onmethodology or data to allow or independentcon rmation o the claims. This speaks again

or the need or veri able, independentlyconducted research along the lines o theKanungo and Mendonca (1988) study.

On a positive note, they show that many organi-zations are taking the lessons learned rom theabove studies seriously: in realizing the value o recognition programs, aligning them with busi-ness strategy, and attempting to measure theresults. Finally, these case studies, and many

other recent ones, represent real world “experi-ments” that bring the study o recognition andmotivation out o the laboratory and into theworkplace. Indeed, they show that organizationsare now taking the rst steps in measuring thee ectiveness o various types o recognition andrewards on motivation, engagement, behavior,and job per ormance across the organization.




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The major research studies that we discussedin this report provide a wealth o support orthe connection between improved employeeengagement and increased business value, mea-sured in several di erent ways. Some o thesestudies also provide evidence that recognitionis one method or increasing employee engage-ment. However, the studies also show the need

or a body o data linking speci c types o rec-ognition programs with quantitative estimates o business value: This value is as likely to be non-

nancial value as it is to be nancial, rein orcingthe concept o VOI.

The major limitation that most past and cur-rent studies share, highlighted by Jordan, is theproblem o con using correlation with causal-ity. Speci cally, it is possible that organizationswith high levels o employee engagement shareother, unmeasured actors that cause increasedemployee engagement levels and improvedbusiness value. 14

The actors above point to the need or urtherin-depth research, along the lines o Kanungoand Mendonca’s study, and less dependenceon surveys as the primary method o exploringthe link between “Recognition—Motivation—Engagement—Individual Per ormance” and“Business Value.” Fortunately, some o thismuch-needed evidence can be ound in theresults o recognition program implementationin actual organizations—when those resultsinclude some measure o business value.Those cases (highlighted in Case Studies

within this report) can be treated as real-world“experiments,” in which e ects o speci c typeso newly implemented recognition programs aremeasured. For example, i a actory establishes a

recognition program to rein orce sa e behaviors(and changes no other sa ety-related programs),and the actual number o accidents peremployee (and related costs due to accidents)then drops, there would be strong evidenceo a causal link between recognition andper ormance, as well as an excellent quantitativeestimate o the ROI o the recognition program:ROI = (Bene t o program—Cost o program)/Cost o program, where the “Bene t o program” can be conservatively estimated asthe estimated reduction in labor and operatingcosts resulting rom the reduced number o accidents. As o now, there is mainly anecdotalevidence rom in-house press releases and otherrelated, non-rigorous reports by organizationso their own (or their clients’) successes. AGallup- or CLC-like study linking speci c typeso recognition programs with speci c measureso the programs’ success—across multipleorganizations—would ul ll a need.

The need or these types o studies is beyondacademic. Legal pressures ( or example, theSarbanes-Oxley Act o 2002) arising rom bador even unethical accounting has put pressureon managers and organizations to ully justi yexpenses. This pressure is even greater intoday’s economic environment, where costsneed to be cut to protect dwindling pro ts.Talent management investments—includingrecognition programs—need to be justi ed byshowing a positive ROI or some other measureo increased business value (Lallande 2008).

However, as the Towers Perrin 2008 studyreviewed in this report points out, mostcompanies that have implemented recognitionprograms do not measure the program’s

Conclusions: The Current State o andFuture Needs or Studies into the Links betweenRecognition and Business Value

14The 2001/2002 Watson Wyatt study that links changes in talent management with changes in nancial per ormance over time is anexample o a type o study that should be conducted. The limitation o that particular study, however, is that recognition in general,and recognition programs in particular, was not part o the analysis.




29

ROI—nor do they replace ROI with some othermeasure o business value. One problemLallande points out is that it is easier to calculatethe ROI o incentives than or recognitionprograms. 15 Incentive programs usually haveclear goals tied to speci c rewards (e.g., 20%

in sales = speci c dollar value to company).In contrast, recognition programs are usuallyimplemented to encourage particular behaviorsthat are considered important to businessstrategy—e.g., initiative, customer service, orsa ety. These behavioral changes will eventuallya ect an organization’s nancial success—butit may take more time and require individualand group behavioral change to reach a certainthreshold. (Lallande, 2003).

The limitations o the traditional ROI method o

assessing changes in business value, particularlyas it relates to recognition programs, points to

the need or organizations to consider othermethods o estimating the organizational pay-o s o recognition programs. This is particularlytrue since ROI is usually utilized or measuringshort-term nancial (tangible) bene ts. Incontrast, recognition programs are implemented

to produce long-term behavioral changes thatwill eventually impact an organization’s nancialbottom line, but will also likely produce non-tangible bene ts as well. There ore, methods areneeded to estimate the value on investment (VOI)o recognition programs, where VOI considersboth nancial and intangible bene ts.

One approach, Employee Li etime Value (seeAppendix II), aims to capture the long-term valueobtained rom investing in workers—althoughtangibles measures o value ( or example,

measured increases in pro ts, customersatis action, etc.) are still likely to be avored.

What Executives are Saying about the Problems o Measuring the ROIo Recognition ( rom Lallande, 2003)Rajiv Burman, SPHIV vice president o human resources: While ocus groups and surveys show thatsta members appreciate the [recognition] programs, Burman considers this evidence anecdotal.“We don’t have hard data that say, ‘This is the dollar amount that we’re spending on awards and incentives, and this is the impact that it’s having on per ormance. I have yet to solve the ROI issue.’”

Bob Nelson, President o Nelson Motivation, Inc., “believes ‘years o service’ awards can becounterproductive—92% o companies give them, spending millions o dollars—but, he believes,no worker is motivated to stay on their job longer to receive them.”

Mike Ward, regional vice president o sales at American Express Incentive Services (AEIS) inFenton, Mo., “estimates that companies spend 0.5 percent to 2 percent o total compensation onincentive and recognition programs.”

“Since it is such a small slice o a corporate budget, one practitioner wonders i calculating the ROI o this investment is worth the rustration,” reports Lallande.

However, Christi L. Gibson, executive director at Recognition Pro essionals International, notesthat in today’s economy, 0.5 percent “o payroll [an organization’s largest cost] may make thedi erence between a red or a black bottom line.”

15Lallande provides the ollowing step-by-step guidelines or calculating the ROI o incentives and awards – an approach thatorganizations can modi y to use or recognition programs as well, i organizations can determine which measurable behaviors area ected by recognition: 1. Measure the baseline; 2. Determine what motivates employees; 3. Align those drivers the company’smissions and objectives; 4. Look or hidden costs; 5. Track recognition and program participation; and 6. Quanti y degree o move-ment rom the baseline.




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Another approach, the Success Case Method developed by Brinkerho , combines analysis o an organization’s extreme groups ( or example,the high-per ormers or highly intrinsicallymotivated workers versus low per ormers orunmotivated workers) with case studies and

“story telling.” The goal is to determine how wellan organizational initiative, such as a recognitionprogram, is working by comparing the twoextreme groups through the use o a shortsurvey. Follow-up evaluations o success ul andunsuccess ul workers result in “stories” used bymanagers and senior leaders to understand:

n Exactly how the worker used the initiative,n What results were achieved due to the

initiative,n How valuable the results were (in dollars), andn What the actors were that produced the

link between the initiative ( or example, therecognition program) and the gain in value(Brinkerho 2003; Brinkerho and Dressler 2002).

While this method cannot produce anaccurate estimate o total nancial gain rom arecognition program, it has the advantage o providing details on how the program actuallyimpacts the behaviors it is designed to a ect,and o producing results that can be easilyunderstood by all stakeholders in the program—in a orm that can be used to improve or modi ythe program i necessary.

Finally, several recent white papers and trade journal articles point out the importance o usingrecognition systems and providing a checklisto key actors to consider when implementinga program. While these lists may di er in a

ew particulars, they share several common

themes that are independent o the cost o therecognition program, including:

n The recognition should be in a orm that iso actual value to the worker, not what therecognition committee thinks the workershould value.

n Provide a choice to the worker on what isreceived to urther increase the value to theindividual.

n Deliver the recognition in the propercontext. Present the recognition in a way thatincreases the value to the worker; whetherthat is through the person presenting therecognition, the audience witnessing therecognition, or other actors (Nelson 2008).

While recognition programs are just onemethod or increasing employee engagement,these programs are important or two mainreasons:n There is mounting evidence and examples o

organizational impact, andn They are much more cost-e ective than

most other elements ( or example, basecompensation) o a total reward strategy.




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The process o motivation is simple and, orthe most part, generally agreed upon. AsFigure 4 shows, motivation starts with a need toachieve or obtain something, which leads to theestablishment o goals or obtaining whateveris desired, and the use o speci c actions orbehaviors that are expected to achieve thegoals. I the selected behavior success ullyachieves the goal and satis es the need, therelikely will be rein orcement in which the samebehaviors will be used the next time there is asimilar need (Mwita 2002).

The ability to take e ective action is highlydependent on an individual’s ability and/ortraining. As mentioned earlier in this report,individual per ormance is dependent upon bothmotivation and skill: Per ormance = Motivation

X Skill. No amount o motivation can overcome

the lack o skills necessary to complete theneeded action. However, motivation mayprovide a reason or anindividual to nd ways toobtain the necessary skills.

Even the most skilled individuals likely willunderper orm i their levels o need/desire (that

is, level o motivation) is low. There ore, optimalper ormance will result when a high level o motivation is coupled with a high level o skill—

or example, when workers are both energizedand competent (see Table 1).

Some recognition programs will either rewardworkers or obtaining extra training (and skills) oruse added developmental opportunities as oneprogram reward, thereby positively infuencingboth the motivation and skills components o thetotal per ormance equation.

2. Establish goal

4. Attain goal

1. Need 3. Take Action

Figure 4. The process o motivation. (Mwita 2002; Armstrong 1993)

Table 1:

energized incompetence energized competenceapathetic incompetence apathetic competence

Appendix: Theories o Motivation




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The study o motivation and how to increaseit spans several scholarly elds includingeconomics, sociology, social psychology, andcognitive neuroscience, as well as some verypractical applications, particularly in educationand human resource management. An extensive

review o the various theories o motivationis outside the scope o this report. However,it is important to mention a ew o the moreimportant theories that orm the basis o mucho the current thinking o what types o rewardsshould be used (and how they should beused) to both increase motivation and link it toimproved per ormance.

Expectancy theory (Vroom 1964) is one o the several process (or cognitive) theorieso motivation and is most relevant or this

report’s purposes; it deals with how motivationis “a ected by people’s perceptions o theirworking environment and the ways in whichthey interpret and understand it” (Mwita 2002;41). In addition, it is these process theories thatsur ace, either explicitly or implicitly, in manyo the justi cations or speci c types o workerincentive, reward, or recognition programs.

As originally ormulated by Vroom, this theoryincludes three main motivational orces: Valence (value o potential outcomes), Instrumentality

(correlation between improved per ormance andobtaining desired outcome), and Expectancy (the level o individual perception that increasede ort will lead to increased job per ormance; orexample, an individual’s belie that he or she hasthe ability to improve his or her per ormance). Vroom (1964) de nes the concept o expectancyin detail:

“Whenever an individual choosesbetween alternatives which involveuncertain outcomes, it seems clear that his behavior is a ected not only by hispre erences among these outcomesbut also by the degree to which hebelieves these outcomes to be possible.Expectancy is defned as a momentary belie concerning the likelihood that

a particular act will be ollowed by aparticular outcome. Expectancies may bedescribed in terms o strength. Maximal strength is indicated by subjectivecertainty that the act will be ollowed by the outcome, while minimal (or zero)

strength is indicated by subjectivecertainty that the act will not be ollowed by the outcome.”

Expectancy theory plays a key role in the worko Kanungo and others, who use it as the basis

or important models o how to turn motivationtheory into practical reward programs.

Social Cognitive Theory (Bandura 1977, 1997)suggests that sel -con dence is the key toproviding an individual with the incentive tobe proactive in per orming tasks. There isconsiderable support or the role that sel -e cacy plays in determining work per ormance,especially as it is “moderated by task complexityand locus o control” (Steers et al. 2004).

This theory is based on goal setting, inwhich individual per ormance is driven by“anticipatory estimates o what is necessary

or goal attainment” (Latham and Pinder2005). A key aspect o this theory is that a goalcan initially increase per ormance be ore any

eedback is given.

This theory is also related to goal setting theoryin that both deal with the positive infuenceo setting a goal on improving per ormance(Locke 1968, 1996). Goal-setting theory doesnot use cognitive tools o individuals, estimatingwhat is necessary to achieve a goal as a drivero per ormance. However, it is based on aconsiderable body o empirical work showingthat goal speci city, goal di culty, and goalcommitment can all improve individual andteam per ormance (Steers et al. 2004). Both

social cognitive and goal-setting theories aretied deeply to the concept that leveraging“intrinsic” motivation is key to improvingper ormance and have been integrated intomany practical applications o using recognitionto improve per ormance.




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16Gibson, J. L., J. M. Ivancevich, , and J. H. Donnelly Jr. Organizations. Boston: Irwin (1991).

Content and Process Theories o Motivation 16

TheoreticalBase

TheoreticalExplanation

Founderso the Theories

ManagerialApplication

Content Focuses on actorswithin the person

that energize, direct,sustain, and stopbehavior. These actorscan only be in erred.

Maslow— ve levelneed hierarchy

Alder er—three levelhierarchy (ERG)

Herzberg —two majoractors called hygiene

motivators

McClelland—threelearned needs acquired

rom culture: achieve-ment, a liation, &power

Managers need to beaware o di erences

in needs, desires, andgoals because eachindividual is unique inmany ways.

Process Describes, explains,and analyzes howbehavior is energized,directed, sustained andstopped.

Skinner—rein orce-ment theory concernedwith the learning thatoccurs as a conse-quence o behavior

Vroom—an expectancytheory o choices

Adams —equity theorybased on compari-sons that an individualmakes

Locke—goal-settingtheory that consciousgoals and intentionsare determinants o behavior

Managers need tounderstand the pro-cess o motivation andhow individuals makechoices based on pre -erences, rewards, andaccomplishments.




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Employee Li etime Value (ELTV)

From Frank Mulhern, Employee Li etime Value:Measuring the Long-Term Financial Contributiono Employees . Forum or People Per ormanceManagement and Measurement Per ormanceImprovement Council, December 2007.

“Employee li etime value [ELTV] is aquantitative measure o the long-term fnancial contribution an employee makes to anorganization.”

Today, the same physical tools needed toproduce products or provide services are

available to almost all companies, across allindustries, rom the smallest to the largest.People are what most di erentiates competitors.The higher the value o a business’s people,the higher the value o the business. Thissimple act is even more important in today’scompetitive labor market, where an ever-increasing percentage o workers are retiringand taking their knowledge and skills with them.In their place, Generations X, while possessinga high level o critical skills necessary or today’s(and tomorrow’s) economy, is smaller, meaningincreased competition or mid-career and newleadership talent and value in today’s globalmarketplace.

Three resource types can be used to increasevalue and give an organization a competitiveadvantage:

1. Physical plant: plant, equipment, andcapital;

2. Organizational value: structure,planning, controlling, and coordinating;and

3. Human value: skills, experience, andknowledge o workers (Mulhern, 2007).

While all three are important, Mulhern pointsout that regardless o what a companyconsiders its strength, “competitive advantageand nancial per ormance stem rom theper ormance o people.” Ensuring that aper ormance management system—includingone using recognition—is optimal requiresthe accurate measurement o both workerper ormance and the ultimate business valuecaptured rom that per ormance. A majorpurpose o this report is to explore i and howorganizations that use recognition systems aremeasuring their e ectiveness. This involves anunderstanding o the analytical tools available,as well as a determination o how well they areimplemented.

The key distinction between ROI and ELTV,according to Mulhern, is that ROI measuresthe net return derived rom dividing all cashin-fow by all expenditures (including salary,bene ts, training, and so on). In contrast,the ELTV measures the value obtained ora particular investment in people and isdesigned to capture the long-term value o thatinvestment. Since recognition programs are a

orm o investing in workers, and are requentlygeared toward obtaining long-term behavioralchanges, organizations should measure theire ectiveness by measuring the li etime valueo that investment, not just the short-term netreturn. Taking the long view should certainly beone o the “best principles” o any recognitionprogram. For that reason, ELTV may soonreplace ROI as the “best practice” method

or determining the valued captured by anorganization’s recognition program.

Appendix II: The Future o Measuring theBusiness Value o Recognition




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Value and ROI in Employee Recognition

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