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The Carrot and the Stick: It’s All about the Carrot

With projected compensation budgets remaining tight for 2006, employers continue to seek other ways to recognize and reward employee behaviors that align with corporate goals.

Projections from both WorldatWork and Mercer Human Resource Consulting show salary increases for 2006 mirroring those of 2005, at around 3.5% (IOMA, 2005). Employers know from experience that such lean budgets don’t allow enough differentiation between star performers and their less-stellar co-workers to have much impact on engagement and retention. The most valued workers aren’t going to feel adequately appreciated, so other pastures may begin looking greener. Meanwhile, the least-valued workers aren’t likely to boost their performance for minimal compensation adjustments.

So, the challenge is to find other reward tools that support the accomplishment of business goals. Many organizations gear these rewards to top performers. The 2005 Mercer SnapShot Survey shows that managers tend to believe that the most important roles of a total rewards program are to attract and retain preferred employees and to differentiate high performers (Mercer, 2005).

Some experts argue, however, that employers should be careful not to neglect the rest of the workforce. They note that it’s often the identification and reward of small, everyday work behaviors that directly lead to the accomplishment of big corporate goals (McCoy, 2005).

Making sure rewards systems contain some variety is one way of reaching a broad spectrum of workers. After all, employees have different strengths, so it makes sense to recognize achievements in different areas, such as safety, job performance, years of service and sales. Employers can also use team awards, which allow recognition to be spread over a wider audience. This ensures that not just the “A” players but the dependable “B” players feel appreciated (Gostick, 2004).

UK whiskey producer Glenmorangie is one example of a firm intent on breathing new life into an incentive program that had become a little too repetitive. The introduction of its HEROES program, or Honouring Excellence and Rewarding Outstanding or Extended Service, freed bonus dollars to be used in new ways. Through an employee survey and focus groups, the firm discovered that workers craved timely management recognition even more than they did financial recognition. A cross-functional team developed the plan and got feedback from their respective groups, a process that encouraged buy-in.

The plan honors achievements in training and development, service milestones, suggestions for improvements and colleague recognition. Reward recipients may be recognized through meetings, newsletters or postings or may redeem HEROES points for gift items. The recognition program has helped maintain morale even through an ownership change (Drysdale, 2005).

As the Glenmorangie case illustrates, noncash rewards can be effective, which is why many managers are focusing on them. More than half of respondents to a 2005 survey by the National Association for Employee Recognition and WorldatWork said they consider recognition programs an investment, and 69% direct specific budget dollars toward such programs (Gibson, 2005). The use of noncash rewards is only expected to grow in importance, according to a panel of experts gathered by the Society for Human Resource Management (SHRM, 2005).

Some companies sweeten the rewards package with employee discounts, which can be quite generous. Barnes & Noble offers employees a 30% discount on books, 20% on music and 50% on food. Talbots offers a 40% discount on clothing. And employees at General Electric can save on big-ticket appliances (Cullen, 2005).

In the future, businesses may see more “self-service” recognition plans that allow workers to accrue dollar-value points based on performance. Employees can use those dollars whenever they feel they deserve it. For example, after a tough week, an employee may want to go out for a nice dinner that weekend (Hobel, 2005).

Employers should keep in mind that even something as simple as a spontaneous “thank you” can go a long way toward establishing a culture where employees are recognized for their contributions. And to make certain that such a culture thrives, managers, too, should be rewarded for actively recognizing and rewarding their employees.

Documents used in the preparation of this TrendWatcher include:

Chartered Institute of Personnel and Development. Annual Survey Report 2005: Reward Management, February 2005.

Cullen, Terri. “Deep Discounts, Freebies Keep These Workers Happy.” Wall Street Journal, June 16, 2005, http://online.wsj.com

Drysdale, Ian. “Raising Spirits Through Recognition at Glenmorangie.” Strategic HR Review (January/February 2005): 12–13.

Gibson, Christi L. “Over the Mountains and Through the Woods to Land of Profits We Go!” Benefits & Compensation Solutions  2, no. 8  (2005):  38–39.

Gostick, Adrian. “Confusion, Envy and Other Tales from the Dark Side of Recognition.” Canadian HR Reporter. ProQuest, December 6, 2004.

Hobel, John. “Self-Recognition? Why Not?” Canadian HR Reporter. ProQuest,  March 28, 2005.

IOMA. IOMA’s Report on Salary Surveys, September 2005.

McCoy, Dawn. “New-Age Incentives.” Benefits & Compensation Solutions  ( July/August 2005): 16.

Mercer Human Resource Consulting. Mercer SnapShot Survey: Measuring the Return on Total Rewards: 2005 Update, August 2005.

Society for Human Resource Management. SHRM Special Expertise Panels 2005 Trends Report, 2005.

About the Author(s)

Donna J. Bear  is the Leadership Knowledge Center Manager for the Institute for Corporate Productivity. She has a B.S. degree in business administration and an M.S. degree in management and is certified as a senior professional in human resources. Her previous experience as an HR generalist/consultant spans the PEO, corporate, and not-for-profit sectors