Secrets of Employee Recognition

We just developed a comprehensive research project on employee recognition (saying “thank you”), and the results are astounding: organizations that give regular thanks to their employees far outperform those that don’t.

Today there is a $46 billion market for employee recognition (gold watches, pins, thank-you awards, plaques, etc.), and our research shows that companies spend between 1-2% of payroll on such stuff. This is an enormous market.

When we looked at where this money goes, we find that 87% of the recognition programs focus on tenure. Yes, that’s right. People get rewarded for sticking around.

What our research found was that tenure-based rewards systems have no impact on organizational performance. Did you stay an extra year at your last job so you could get a 10-year pin? I highly doubt it.

It turns out that many of these tenure-based rewards programs are legacy programs from the turn of the century when labor unions urged management to give employees “service awards” and hourly raises for tenure. Most large companies still have these programs today, yet only 58% of employees even know such programs exist. So, for the most part, they aren’t generating much value.

On another hand, our research found that modern, re-engineered recognition programs can have a huge impact on business performance. Companies that scored in the top 20% for building a “recognition-rich culture” actually had 31% lower voluntary turnover rates! This is a tremendous statistic. Most CEO’s would pay millions of dollars to reduce voluntary turnover (this is when good people leave on their own). It turns out that a well-designed recognition program can accomplish this result.

Let me list the top 5 best practices we discovered:

Recognize people based on specific results and behaviors.
Don’t just give someone a reward for being “employee of the month.” Give them an award for delivering outstanding customer service when a particular problem occurred. This creates a culture of “doing the right thing.”

Implement peer to peer recognition – not top down.
Recognition from leaders has less impact than you may think. While HR managers believe this is a key criterion for success, employees told us that they feel much better when they are recognized by their peers. Why is this? Peers know what you’re doing on a day to day basis, so when they “thank you” for your efforts the impact is much more meaningful. Top-down recognition is often seen as political, and it seldom reaches the “quiet but critical high-performers” in the company.

Modern high-performance recognition programs are “social” – they let anyone in the company recognize anyone else (often using “points” or “dollars.”) The thank you’s are completely public and displayed on a “leader board” so anyone can see them. Hot startups like Achievers and Globoforce are selling cloud-based platforms that make this easy, and traditional rewards companies like OC Tanner are moving in this direction as well.

Share recognition stories.
One of the most important practices we recognized was “story telling.” When someone does something great and is recognized by their peers, tell people about it. Not only should they get an “employee of the month” parking space (kidding – these remind me of the movie “Office Space,” by the way), but you should mention them in a newsletter or company blog. These stories create employee engagement and learning.

In our business, we have a weekly company-wide conference call, and we make a point of acknowledging someone for their contributions every week. Not only does this make that person feel great, it lets our leadership team promote behaviors and results that we expect from everyone. We also use a peer-to-peer system, which produces its own “storyboard” of performance and thanks.

Make recognition easy and frequent.
Make it trivially simple for employees to acknowledge each other. Many of the modern programs we studied give all employees a budget for “points” or “dollars” and they can provide them to others online in seconds. We use one of these systems in our company, and the results have been amazing. People who do big things are now visible to everyone else!

Tie recognition to your company values or goals.
Companies like Deloitte and Intuit have recognition programs which concentrate on the company’s mission and goals. So when you give someone a “thank you” award, the award is tied to your own company’s strategy (customer service, innovation, teamwork, or even a revenue or cost-cutting goal).

I know this stuff sounds fluffy and not very business-like, but believe me, it works. Too many CEO’s and managers concentrate on bottom line results without thinking about how it feels to slog away and work without anybody saying thanks.

The Psychology of Recognition

In Maslow’s hierarchy of needs, two of the most important psychological needs we have as human beings are the need to be appreciated and the need to “belong.” These needs are met through peer-to-peer thanks and recognition. Look at the hierarchy below: you can see the compensation and benefits support a fundamental need, but recognition and career advancement support our higher-level psychological needs.

Remember that the goal of recognition is to drive greater levels of “discretionary effort.” Such discretionary effort comes when we, as people, feel inspired to do more.

Hormones Play A Role

One final point. Recognition has a physiological influence on performance.

Oxytocin is the well-known “love hormone.” Our bodies create Oxytocin when we feel loved or appreciated (even shaking someone’s hand or giving them a hug creates this hormone). Recent research shows that people who work under the influence of Oxytocin perform better and are more trustworthy at work.

When your company embraces a modern recognition program, and people begin thanking each other, trust and engagement go up – improving employee morale, quality, and customer service.

Of course, recognition does not supersede the need for feedback, accountability, and goal-setting. These performance management programs are still badly needed to drive alignment and performance. But our research shows that in 83% of the organizations we studied suffer from a deficit in “recognition.” And these companies are underperforming their peers.

Oh, one more thing. Recognition is not only something executives should do – it should take place throughout the organization. The research simply shows that top-down recognition is not what makes companies thrive today – it’s recognition by your peers, the people you work with every day.

Next time you see someone doing the right thing, take a minute and thank them openly.

It’s good management and good business.

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