As organizations seek to do more with less, the power of rewards can keep the workforce engaged in times of wage stagnation.
In the war for talent, a lot of attention these days is focused on acquisition, but for many organizations, nothing gets more bang for the buck than retention of valuable employees. And short of boosting overall compensation packages, nothing is more effective at winning loyalties than a well-designed employee recognition program.
In these belt-tightening times, companies often don’t have the luxury of ratcheting up payroll, which makes recognition efforts even more critical. As wage growth slows and employers cut back on bonuses and other cash rewards, they must become more innovative in raising productivity while holding the line on recognition spending. That’s a tall order for companies that insist on designing and maintaining their own recognition programs. On one hand, they’re charged with keeping a lid on spending; on the other, they need to raise program effectiveness to keep employees engaged. So, what’s an employer to do?
Increasingly, employee recognition programs are being outsourced to third-party experts, especially as HR organizations look to centralize and standardize their efforts. Moreover, buyers in need of robust technology, global resources, and consultative support in setting up their programs are discovering that an external solution can deliver much better results than taking on the task by themselves. And like outsourcing other HR services, turning over employee recognition chores frees up internal resources to focus on strategic functions rather than administrative ones.
“We had an internal solution developed and managed by Nortel resources, but that’s not Nortel’s core business, so we looked for opportunities to outsource that kind of solution,” said Rob Schmitter, global program leader for rewards and recognition at telecommunications giant Nortel. “We wanted to know what was happening in the field [of employee recognition] from third-party suppliers, those that are experts in the field.”
Schmitter explained that his company turned over its recognition program to provider Globoforce in June of last year after it realized that its own efforts had failed to deliver the kind of results it desired. Rewarding only cash, the old program was plagued by numerous problems, including long delays before employees actually received their rewards, diminishing the positive effect of the reward. Because they were in cash, the awards received by employees were less than anticipated after taxes. And employees sometimes lost interest or failed to notice the award when it finally showed up in their paycheck.
While the company has a global presence, some recognition efforts weren’t even being tracked. “We had a number of ad hoc programs running. We had little groups here and there running their own recognition programs—all good and well intentions, but we had no idea how much they were costing us,” Schmitter added.
Schmitter’s experience is not unlike those of his counterparts at many organizations today. Employee recognition programs often are not centrally created or standardized, which can lead to varying degrees of success. As a result, measuring ROI is an unscientific exercise, reduced only to a collection of anecdotal evidence. This informal approach also makes it nearly impossible to determine the true value of these programs because spends are not clearly delineated, staff time spent on administration is undocumented, and the impact on the workforce is unclear.
“Increasingly people are realizing that the talent war is happening right now, and it’s not just about pay. A lot of people don’t know how to use recognition as a strategic business tool,” explained Peter Hart, CEO of service provider Rideau Recognition Solutions.
He noted that about 90 percent of companies in North America have some kind of recognition effort in place, but 60 percent of employees say they don’t feel recognized. That’s primarily due to organizations failing to align their program with their company’s core missions and values, Hart added. And often companies fail to understand what rewards will have the greatest impact on improving performance. A common mistake is to hand out cash, which many recognition experts say often doesn’t make employees feel recognized.
Recognition plays a big part in workforce engagement, and studies show that the more engaged the worker, the better the business outcome. In a recent study of Global 50 companies by Towers Perrin, those boasting high employee engagement reported that operating income was higher by 19 percent and earnings per share were almost 28 percent higher. Businesses with low levels of engagement experienced operating income declines of more than 32 percent and a fall in earnings per share of more than 11 percent. Clearly, there are financial implications.
Delivering an effective employee recognition program can be much more challenging these days, experts say, because it needs to be more engaging as a result of wage stagnation, management’s requirement to show ROI on spend, and the growing complexity of motivating workers. For instance, one area that many outsourced service providers are being asked to address is providing incentives for participation in wellness programs (see this issue’s cover story on Rideau’s partnership with Ceridian, p. 28) instead of just for job performance. Encouraging workers to lead healthy lifestyles is exponentially more difficult than making job-related behavioral changes. Nevertheless, some studies show that a wellness program reinforced with an incentive aspect can produce an ROI as high as a ratio of 17 to 1, easily making it the most effective investment in HR.
But many organizations still don’t view employee recognition and incentives as a critical component of their human capital strategy. And even when they do, they’re not always sure how to effectively construct a program. That’s why outsourced recognition continues to gain momentum as buyers such as Nortel realize the advantages of employing a best-of-breed provider. As Schmitter pointed out, employers should focus on what they do best and not reinvent the wheel when it comes to designing and administering recognition programs.
“We develop telecom solutions for the interconnected world. Our business should not be developing and enhancing recognition programs, especially where there are third parties that specialize in this,” he said.
The Tech Advantage
Even as a technology company, Nortel wasn’t able to develop the tools that Globoforce can offer in its recognition programs. Schmitter noted that what might have taken weeks to process internally in the past can now be completed in the same day. And it’s these kinds of innovations that have helped service providers claim an advantage over internal solutions.
Derek Irvine, Globoforce vice president of global strategy, noted that many companies that administer their own programs rely on very antiquated or limited software tools. Typically they fall into two categories: spreadsheets and payroll-based systems. With crude functionality, they offer little visibility throughout the organization and even less flexibility for special awards or categories. He said employers could end up spending too much time on developing or fixing the technology instead of raising workforce engagement.
When it comes to management recognition programs, “why would you reinvent and develop a new piece of technology when companies like us already have a suite of software,” he said.
Of course, today’s employee recognition technology involves more than just managing the administrative aspects of recognition efforts. Sophisticated reporting functions, in-depth analytics, and even event reminders that prompt managers to acknowledge achievements all raise the effectiveness of recognition spends. Outsourced service providers have invested millions of dollars to add bells and whistles to their platforms, and the result is an ever-evolving set of tools that raises workforce participation in these programs.
“We are using client and participant surveys constantly, asking, ‘What do you like about the site? Do you see more interaction needed?’ ” said Dana Slockbower, director of marketing for Rymax Corp., a provider of incentives services.
She pointed out that as Internet commerce has become mainstream, the use of web-based recognition platforms is now de rigueur. In fact, these platforms offer flexibility to reward recipients and managers like never before, with the ability to allow instant recognition, around-the-clock access by users, and an expanding catalog of products and gifts. Slockbower added that even as the front-end offers recipients a more satisfying shopping experience, on the back-end HR leaders can use analytical tools to determine which aspects of their programs work best, which don’t, what kind of products employees choose most often, and what items are being ignored.
Today’s Global Market
But beyond technology, outsourced service providers offer something that many internal recognition departments can’t deliver: a global footprint. As Irvine noted, centrally administered recognition programs sometimes fail to account for regional and cultural nuances in reward selections. Furthermore, trying to fulfill orders in one region using a warehouse from another can be slow and inefficient, resulting in a diminished impact on employee engagement.
“If you have a team in Chicago or Nashville, it’s increasingly difficult for them to put together a worldwide program,” he pointed out, adding that an amount of cash determined by the home office may actually be significantly less than intended after accounting for currency exchange rates and local taxes in the employee’s home region. Or a gift may be totally culturally inappropriate, such as giving a clock to a Chinese employee, which in China would symbolize approaching death. These are all considerations that a centrally administered program may overlook.
As Nortel’s Schmitter noted, designing a recognition program that accounts for regional and international differences speaks volumes about the employer’s care in rewarding its workers. “For our colleagues in China, it really makes them feel like part of the team when the solution is delivered in their language,” he said.
Indeed, while many organizations still view employee recognition as a gift-giving process, truly effective programs can achieve their goal without requiring a high spend. As Rideau’s Hart noted, companies should consider three keys to building a strong program: alignment with the organization’s vision, mission, and values; ensuring trackability and measurement; and educating managers on why employee recognition is important. In the end, material rewards don’t necessarily result in employee engagement.
“The old line of thought was after 25 years of service, ‘Here’s your gold watch.’ Just because you gave them a watch does not mean you recognized them,” Hart said. “Recognition is more about the ethereal. The most powerful recognition rewards are sometimes the words you use.”
How a company puts those words in a recognition message, along with the choice of rewards it offers, is critical to ensuring organizations get the greatest return on their investment. At a time when many companies are focusing their resources on core competencies, outsourcing employee recognition may ultimately mean the most efficient use of their budget and the most satisfied workforce.