The ROI of Recognition Programs

June 15, 2010
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Scrimping on employee recognition programs might be penny-wise, but it’s pound-foolish, agree human resource experts and practitioners. Their advice is presented in “Recognition Programs That Work,” a white paper from the CUNA HR/TD Council.

In the interest of cutting costs, it can be tempting to curb “soft” employee benefits, including recognition and rewards for staff. But in today’s work environment—with hiring freezes, layoffs, and static compensation packages—employee recognition is more vital than ever, suggests the white paper. Especially, but not exclusively, during challenging economic conditions, credit unions should put a premium on engaged employees, because disengaged workers represent lost productivity and innovation for a credit union.

Employee engagement is the emotional attachment between an employee and a workplace—the result of a bond that produces remarkable financial results for companies, according to the white paper. Gallup Research has shown that business units in the top quartile of engagement have 12% higher customer advocacy, 18% higher productivity, and 12% higher profitability than bottom-quartile business units.

Engagement also links powerfully to financial performance, according to Gallup. When compared with their industry peers, organizations with more than four engaged employees for every one actively disengaged employee saw 2.6 times more growth in earnings per share than did organizations with a ratio of slightly less than one engaged worker for every one actively disengaged employee. And earnings per share for top-quartile engaged organizations outpaced the earnings per share of bottom-quartile companies by 8%.

As much as engagement boosts the bottom line, disengagement damages it. The bottom quartile of business units have 51% more inventory shrinkage, 31% to 51% more employee turnover, and 62% more accidents than business units in the top quartile.

“Many organizations, including credit unions, sometimes don’t see the value of employee engagement from a strategic level,” notes the white paper. “Recognition programs run the danger of getting stuck as a tactical, human resources-only driven initiative. Yet credit unions, because they’re not dictated by next-quarter profits, can use recognition programs to build long-term returns from engaged employees.

“Employee recognition and rewards can improve a company’s bottom line. Treating employees with courtesy and respect, and recognizing their achievements will result in better member service and a financially stronger credit union.”

What types of rewards and recognition work? It depends on the employee, reports the white paper. So it’s helpful to ask employees what works for them, individually. But effective rewards are also fair, as defined by four criteria, according to a study conducted by Towers Perrin:

1. Fair process: The consistency and equity of the delivery of the recognition. People believe processes are procedurally fair when they can voice their opinions and have some influence over the outcome.

2. Fair outcome: The degree to which a result conforms to the individual’s personal sense of worth or accomplishment. Distributive fairness is heightened when people see the clear connection between recognition and performance.

3. Fair treatment: The consideration, respect, and sensitivity people receive when recognition is delivered. Interpersonal fairness reflects how people experience the emotional context of recognition, whether receiving it themselves or witnessing others being recognized.

4. Fair explanation: The clarity of information that accompanies the distribution of rewards and recognition. Criteria for informational fairness include reasonableness, candidness, thoroughness, and timeliness.

“Employee recognition, done strategically, effectively, personally, and thoughtfully, can be a strong tool to keep employees engaged and productive,” notes the white paper. “Especially when the work environment is so challenging, recognition efforts can go a long way.”