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WHY DO WE NEED REWARDS AND RECOGNITION?

North Carolina offers a terrific total rewards package to all of its regular full-time employees. But what about its top performers? Should there be systems to recognize and reward outstanding performance? Should top performers be held up as an example to other employees? Of course!

An effective rewards and recognition program is a key component of a performance culture. If there is no means of recognizing top performance, little incentive exists to achieve it. Employees need tangible feedback in order to know when they're doing a good job. When organizations work in a "culture of recognition," employee job satisfaction and retention are improved.

The Corporate Leadership Council (CLC) identifies five critical attributes for an Employee Value Proposition (EVP): rewards, opportunity, organization, work and people. Features of an effective rewards and recognition program run as a thread through these attributes, reflecting what employees want out of an employer. Recognition and work-life balance are components of the "work" attribute, and are among the top drivers in an EVP. Development and future career opportunities fall under "opportunity." Respect, a critical feature of a culture of recognition, can be found under "organization."

The top three EVP drivers, development opportunities, future career opportunities and respect, are common to both employee attraction and commitment development and are all related either directly or indirectly to rewards and recognition.

Rewards and Recognition Trends

Formal, comprehensive rewards and recognition programs are increasingly common. According to a 2005 survey conducted by World at Work and the National Association for Employee Recognition (NAER, now known as Recognition Professionals International)

  • 89% of organizations maintain some kind of rewards and recognition program (up from 84% in 2002 and 87% in 2003)
  • 97% with formally documented programs directly align rewards and recognition programs with business strategies
  • 71% have both formal and informal rewards and recognition programs
  • 69% have a budget specifically for rewards and recognition programs
  • 60% have written guidelines for their rewards and recognition programs
  • 92% used rewards and recognition as much as or more frequently than the year before
  • Length of service recognition programs are the most popular, followed closely by programs for above and beyond performance. However, above and beyond performance recognition programs are the fastest growing, with only 46% of respondents reporting that they have had such programs in place for more than 5 years.

The same study identified the top drivers for implementing and maintaining rewards and recognition programs as follows:

  • Create a positive work environment (80%)
  • Create a culture of recognition (76%)
  • Motivate high performance (75%)
  • Reinforce desired behaviors (75%)
  • Increase employee morale (71%)
  • Support organization's mission (66%)
  • Increase retention (51%)
  • Encourage loyalty (40%)
  • Support culture change (24%)

A 2005 Watson Wyatt Worldwide study found that companies with an effective recognition program realized a median return to shareholders that is nearly double that of companies with no such programs. Another study from the Society for Incentive and Travel Executives found that well-designed rewards programs could increase employee performance by up to 44% (source: CLC).

The Business Research Lab reports, "the correlation between the length of time people intend to stay with their current employers and the recognition given for work that is well done is .27 -- a positive and statistically significant relationship. The relationship between monetary rewards and intention to stay also is positive, but somewhat less so." The BRL also published the following graph from a study that shows the positive correlation between recognition and employee engagement:

Agreement Levels with the Statement 'I feel I am contributing to this company's mission'

The public sector is making increasing use of rewards and recognition. A 2004 study by Best Practices, LLC involving 131 private, public and non-profit organizations showed that each organization used both formal and informal rewards and recognition elements. Public and non-profit organizations reported frequency of awards as follows:

  • Annual — 71%
  • On-the-spot — 52%
  • Monthly — 43%
  • Quarterly — 33%
  • Other — 19%

Close to home, Virginia — with whom North Carolina competes for talent — allows for several categories of rewards for formal, planned and immediate recognition, with a blend of monetary and non-monetary awards of up to $2,000 in value and/or paid time off of up to five days per calendar year.

Rewards and Recognition Benefits

Some basic benefits of effective rewards and recognition programs, from The 1001 Rewards & Recognition Fieldbook by Bob Nelson, PhD and Dean Spitzer, PhD. follow:

Improved morale

When employees are recognized for doing good work, they feel appreciated and are consequently happier and more satisfied with their jobs and their employers.

Enhanced productivity

Employees who feel good about their jobs and their employers tend to perform at a higher level.

Increased competitiveness

When an organization recognizes and rewards performance that is aligned with key objectives, it becomes more successful, competitive and efficient.

Decreased stress

Recognition helps make work more fun and exciting, increasing the likelihood that employees will appreciate challenges rather than feeling overwhelmed.

Decreased absenteeism

When employees are recognized and valued for the work they do, time spent on the job is more enjoyable and rewarding and there is more incentive to be there.

Decreased turnover

More recognition means better relationships between supervisors and employees, which increases retention.

Lower related costs

Increased retention means lower turnover costs.

Rewards and Recognition Components

In order for rewards and recognition programs to be an effective part of an EVP, they should be visible, comprehensive, inclusive, meaningful and easy to use. According to the CLC, effective rewards and recognition programs should consist of the following components (for more information see "Creating an Effective Reward and Recognition Program," March 2006):

  • Link rewards to organizational strategies and goals
  • Impact a large number of employees
  • Create simple and user-friendly systems
  • Involve employees in the design and implementation process
  • Involve and train managers
  • Communicate and promote the program
  • Give personalized awards, not money
  • Give immediate and innovative awards
  • Enable peer recognition

While having a rewards and recognition program is clearly a best practice, it's not enough just to have one. It must be well planned and continually evaluated to ensure its continued success. Some criteria that should be considered include:

  • Do employees understand the program?
  • Do employees like the program?
  • What would employees change about the program?
  • How frequently do managers recognize employees and in what ways?
  • Has the program prompted a measurable improvement in performance?
  • Has morale improved?