Rewards—a History

Ruminations on the fine art of backpatting.
 
 
By Jay Whitehead
 

It’s been 2600 years since the first recorded act of employee motivation using recognition. If you guessed that the recipient was a military man, you would be wrong.
The first employee recognizer was Cyrus the Great, founder of the Achaemenid Empire, modern-day Iran, who used recognition (a ceremony involving a shoulder pat, a beverage, and a coin featuring Cyrus’ head) to incent construction workers to rebuild the Jerusalem Temple in 538 B.C. In the 26 centuries since, we Homo sapiens have learned a few lessons about changing worker behaviors with recognition (see the “Historical Lessons” sidebar). As it turns out, Sigmund Freud was right. Freud famously wrote that the human psyche is (and will forever be) a love-hungry mess. And because many of today’s employees define themselves in terms of their jobs, nowhere is that observation truer than at work.
 

In fact, Sigmund Freud’s observation defines the “big bet” of employee recognition: Employees whose good work is appreciated will consistently deliver more good work than their unappreciated brethren. That doesn’t mean that all employees are like Pavlov’s dogs, salivating at the sound of a bell. But it does mean that from employees, you get what you recognize. Recognize, rinse, and repeat.
 

At their best, employee recognition programs are feedback loops. For Canadian mathematician David Orrell, bestselling author of Apollo’s Arrow, employer feedback is how companies “maximize utility . . . the force that drives the economy.” Recognition’s power is in multiplying the utility and value that employee behaviors deliver to the enterprise. As a result, because today’s IT solutions are more cost-effective at feedback than human agents are, online recognition systems have become quite popular.
 

Truth be told, most of today’s IT-based recognition systems are used for delivering rewards—stuff such as money and merchandise and gift cards. But recently, scientists have proven that when it comes to improving employee behaviors, nonmonetary recognition (delivered in person or via LinkedIn-type apps) can be even a more durable currency than monetary recognition. That’s why there is a boom underway in “social recognition” tools that deliver virtual pats on the back. As of August 2011, the “social recognition” and “social software” market includes more than 50 entrants.
 

World at Work in May 2011 reported that 86 percent of companies have an employee recognition program. And for those whose programs are automated, 70 percent are satisfied with their provider. But while recognition programs (full disclosure: I work for Rideau) have become widespread, automated, and high-powered, three pitfalls about the practice must be remembered.
 

Recognition’s Pitfalls
Pitfall number one: Suffering “breakage.” While a gift card from Beach Bum Tanning may seem cool, chances are high (often 30 percent to 50 percent) that it will never get used. The unused part of a gift card’s value is called “breakage.” Some reward providers pocket the unused card balance. What’s more, some providers earn “double-breakage.” The unused card value is break number one. Break number two comes when providers require employers to buy “points” or “award vouchers” up-front, and these then go unredeemed (“point” and “award voucher” nonredemption rates can run as high as 15 percent to 25 percent). “Double-breakage” is unredeemed points plus unused cards, and can add up to 50 percent or more of a program’s budget.
 

Breakage-dependent recognition and reward providers have an enviable sales pitch: “points,” reward cards, and “award vouchers” can cost less because you pay no service fees. But breakage puts the provider in conflict with her clients’ interest to reward employees. The breakage-dependent provider earns more by suppressing employee redemptions. The alternative is a breakage-neutral provider who earns a fee to ensure your rewards get used. It’s a good idea to know how your provider is getting paid. If you don’t want breakage to stand between you and your employees, find a breakage-neutral provider. Yes, they’re out there. All you have to do is ask.
 

Pitfall number two: Forgetting about taxes. Here’s the ugly truth. Tangible employee rewards are taxable with only one exception in the United States and Canada—if the award is for years of service and it’s symbolic (like a plaque or engraved desk clock) and not cash or securities or prepaid value cards. Nonmonetary recognition such as social recognition is, of course, tax-free. Bottom line: If you’re recognizing with tangible goods, make sure your provider offers tax compliance reporting that keeps you square with the authorities.
 

Pitfall number three: Depending on money. It is less true than ever that money is recognition’s only currency. Several new studies show that social recognition—electronic pats on the back largely in the form of online acknowledgement or e-cards or e-certificates presented in person—punches above its weight in behavior-improving impact. In fact, it can deliver significantly better and more durable results than tangible rewards.
 

The discovery of nonmonetary recognition’s power has spurred a frenzy of technological innovations. LinkedIn-like functions on corporate HR information and intranet systems are being installed in record numbers, and they help global employers reach their workforces worldwide. The bad news is that some employers are finding that stand-alone social recognition systems are difficult to cost-justify and often get orphaned. The good news is that Global 1000 firms are realizing sustained bottom-line value when the social recognition applications are bundled with customer relationship management, workforce management, and performance management feedback and coaching systems. Recognition’s real power comes when it is a bridge to a management system that delivers bottom-line improvements.
 

Four History Lessons
Lesson one: Recognition is regulation. Here’s an analogy. Recognition is to an organization as democracy is to a politician or as evolution is to a species. A politician’s success is dependent on her ability to get elected democratically—positive feedback means re-election, negative means defeat. A species’ success depends on how well it evolves to fit its environment—evolve positively and your babies survive, negatively and they don’t. Recognition is a regulatory feedback loop that gives the individual employee a real-time scorecard of how well she or he is serving colleagues and the organization.
 
 
The proof here is that employees only get recognition for what helps the team. Recognition systems are at their best when they incent individual behaviors that deliver value to the group and turn their back on those that don’t—a de facto regulatory function.
 

Lesson two: Recognition is a more durable and cost-effective currency for changing certain employee behaviors than cash. Napoleon famously said that while he could find nobody willing to die for money, he found legions of people who were honored to die for a ribbon. Recognition, when it represents a form of appreciation universally valued within an organization (e.g., points, president’s clubs, performance awards), becomes a currency for motivating employee behavior that often conveys more value within the company than a boost in salary or rank.
 

In thousands of organizations, recognition is a weapon now understood to have a direct measurable impact on employee retention, safety, sales and management performance, employee engagement, absenteeism, change management, leadership development, health and wellness, and employer brand improvement at a cost of as little as $24 to $60 per employee per year. In nearly any North American organization, a wage increase of a similar amount would have virtually zero measurable positive behavioral impact. Cash may be king. But think chess, where a king can only move one space at a time, while a queen can win from any direction or distance. In the chess game of the workplace, recognition is queen.
 

Lesson three: Recognizing badly is worse than not at all. Recognition’s motivational power lies in how consistently it conveys sincerity and value. When insincere or applied with inconsistency, recognition and rewards are ineffective or in the worst case, de-motivating. To paraphrase management guru Steven Covey, you can’t reward your way out of something you’ve behaved your way into. If you’re uncertain how to properly recognize employees sincerely or consistently, the recognition industry’s trade group, Recognition.org, can refer you to helpful resources.
 

Lesson four: Recognition at its best uses technologies that reach the largest number of employees. While lots of resources have been invested in online portal recognition systems, the truth is that not all employees have access to computers, nor are all employees inclined to use online processes. A recent visit to a large Midwestern manufacturer found significant resistance to online systems for recognition and other HR functions as basic as timesheet processing. For offline employees, mobile solutions using smartphone screens are now being used to extend recognition programs’ reach.
Yet even the cell phone is ineffective in remote, non-cell-accessible locations or dangerous worksites. In these situations, the simplest technologies for distributing recognition points can work remarkably well. Think poker chips.
 
 
Jay Whitehead is publisher emeritus of HRO Today. Today Jay spends his weeks in Montreal working in the recognition industry, and returns to his family in New Jersey on weekends. He can be reached at jaywhitehead@rideau.com.