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Transforming Your Business:

The New Science of Rewards and Recognition

By: Melissa Van Dyke

Although noncash incentives and recognition programs have been in play since the (last) Great Depression, the science and research supporting business use has, until recently, been surprisingly sparse. However, driven by a proliferation of renewed interest in uncovering alternative cost-effective performance solutions, a new body of research has emerged that strongly confirms the value of noncash rewards within the engagement mix and provides increased insight into how to design programs more effectively.

The Brand Has a Face

In the current days of spam filters, push marketing alone very rarely yields the desired results. Likewise, budgetary pressures have caused many organizations to continue the move to “self-service” approaches that make it more difficult to stand out from the competition. In response Fast Future has predicted that in 2012 customer service will become the “killer app.” Engaging customers today requires all stakeholders within the company to be committed. It also requires that organizations redefine (or repurpose) what the brand represents—internally and externally.

“We’re All Marketers Now,” a recent article in McKinsey Quarterly, argued that “everyone is responsible for marketing” or, at least, the part that focuses on exceeding customer expectations. Progressive companies are now embracing the notion that the intersection of customer and employee is often the moment of truth for their value proposition. As a consequence, they are focusing more resources on one-on-one relationship building and designing reward and recognition programs that reinforce an improved customer or colleague experience. This is resulting in incremental sales increases, leaps in both collaboration and productivity, and a high level of shared ownership and service quality.

Doing More with Less Takes on a New Dimension
Like any other business expense, the funding of reward programs attracts intense scrutiny from business leaders looking to slash unnecessary expenses. Although finding a financial justification for any initiative has always been important to senior executives, in today’s challenging economy it is paramount. For requests to gain approval, sponsors must also demonstrate that it will likely drive better outcomes than other alternatives.

Below are four important research conclusions that show how, under the right circumstances, noncash rewards can be more “effective” and therefore more “efficient” than traditional forms of compensation.

1. Noncash rewards impact revenue and key sales indicators: Some of the most important research about the effectiveness of noncash rewards comes from a fall 2011 study by the Aberdeen Group of almost 300 organizations, "Sales Performance Management 2012: How the Best-In-Class Optimize the Front Line to Grow the Bottom Line."

Among its findings:
• Organizations that provide noncash reward/recognition had an average year-to-year annual corporate revenue increase of 9.6% versus just 3% for all other organizations.
• Organizations that provide noncash reward/recognition had a 2.1% year-to-year increase in revenue per full time sales employee versus a 0.7% decrease for all other firms.
• Organizations that provide noncash reward/recognition had a 1.6% year-to-year increase in team attainment of quota versus a decrease of 2.2% for all other companies.
• Adopters of non-cash rewards/recognition also had 34% shorter sales rep time-to-productivity.

2. Tangible awards capture attention and impact business results. A 2011 study by Jeffrey & Adomdza concluded that employees think more frequently about tangible, noncash awards than cash awards and that the increased interest leads to higher performance. The logic followed that since noncash awards capture an employee’s imagination, they also motivate the employee to do more. The increased motivational impact equals increased performance and bottom-line impact. Incentive Research Foundation (IRF) research has also uncovered several case histories that reinforce the impact merchandise and travel awards have on increasing everyday business results like reduced absenteeism. In Recognizing Good Attendance: A Longitudinal, Experimental Field Study (Scott & McKee, 2002), the authors documented how personal recognition and the use of premiums reduced absenteeism in four cut-and-sew garment factories in each of four quarters measured. Reductions ranged from 29% to 52% each quarter for reward recipients, with reductions not found in control groups.

3. Although preferred, cash alone can underperform. Companies that rely on cash rewards alone will be interested in a study conducted by Shaffer and Arkes (2009) that found that when employees make a hypothetical choice between cash and noncash incentives, they indeed prefer cash. However, the study found when it’s no longer hypothetical and an award is identified, employees actually performed better in pursuit of a noncash award, even when the award was of equal value to the cash alternative.

Likewise, “A Comparative Study of Incentives in Sales” published in The Journal of Personal Selling & Sales Management compared cash and noncash reward effectiveness among insurance agents. The control-tested study revealed that travel and entertainment awards unequivocally outperformed cash awards as incentives for agents to acquire new customers. Likewise, the 2010 study Anatomy of a Successful Incentive Travel Program, by Kimberly S. Severt, PhD, found that “employees are motivated by both the incentive travel award they can earn and the recognition afforded to them by the corporate leaders when they participate in the travel event.” The report goes on to note that from management’s perspective, “The incentive travel program is a business expense justified by the [program’s] tangible and intangible benefits. Tangible benefits are the increase in financial metrics; while intangible benefits are those that strengthen the company internally such as the reinforcement of the organizational culture. The recognition earners receive during this [program] is something monetary rewards cannot provide.”

As organizations look to do more with less, the argument can be made that introducing a noncash component to a pay for performance scheme may make the total package more effective and therefore more efficient than one with an “all cash” payout.

4. Rewards and engagement are inextricably linked. Over the last decade or so an overwhelming amount of research from such respected organizations as Gallup, Hay Group, and Towers Watson has made an irrefutable connection between an organization’s level of engagement and its financial results. In addition, these studies have shown that an organization’s use of rewards and recognition plays a vital role in driving engagement levels. The Enterprise Engagement Alliance (EEA) recently performed a thorough review of the past quarter-century of research to determine links between the use of incentives and engagement (mainly employee and customer engagement). The review, which combined evidence from more than forty studies, demonstrated that there is a clear business case for engagement and non-cash reward programs, regardless of whether the program’s objective is to recognize people for an extra accomplishment, give consumers a better value, or recognize people for their contribution in a way that promotes these values throughout the organization.

Key Program Traits
Of course, not all reward and recognition programs are created equally. IRF research shows that the difference in a well-constructed versus poorly constructed reward program can mean a +84% ROI
or a -92% ROI, respectively. That finding alone underscores the importance of smart design. The IRF’s landmark study, Incentives, Rewards, and Workplace Motivation, conducted extensive analysis on rewards and recognition programs and identified eight characteristics that programs should possess in order to provide optimum results.

1. Clear goals. People are more likely to direct their energy in a positive way if they have defined, attainable goals. A properly structured incentive program will give the targeted audience a clear way to direct their energies.
2. Communication. People perform better, and are more likely to be loyal, when they have a clear understanding of what is being asked of them and how they should contribute their efforts. Incentive programs that provide regular, relevant communication help people feel informed and a vital part of the organization.
3. Capability. People cannot do what’s asked of them unless they have the resources to do so. Rewards and recognition planners should ensure people have the skills and resources required to achieve the requested performance goals.
4. Task value. People work better when their labors have meaning, when they buy in to the mission. Rewards and recognition can give employees a sense of alignment by demonstrating the organization’s appreciation for people at every level.
5. Emotion. The research found that engagement has a lot to do with mood. Although they cannot completely correct a highly negative work environment, rewards and recognition can counter many of the effects.
6. Support. People will have the greatest likelihood of working toward specific goals if theyare supported in their efforts. Rewards and recognition programs are a powerful way of conveying this support.
7. Attainability. The program has to be structured so that as many people as possible feel they can do what is being asked of them. Many programs set impossible goals or are structured so that only the top performers can win.
8. Measurement. People perform better if they have clear goals and receive regular feedback on their progress and information on how they can improve. Built into the most effective reward and recognition programs are ways to track performance, provide feedback, and shift goals to close acute performance gaps.

Summary

Greater corporate oversight and challenging economic climate means reward and recognition designers are likely to face greater scrutiny and increased demand for a tighter business case, and require more evidence of ROI and business impact in advance of funding. In all, today’s business and work environments demand more careful planning, goal-setting, and measurement when designing incentive programs.

Program design is the most critical component when developing an effective and efficient approach to driving higher levels of engagement, performance, and loyalty. In an economic environment where everyone is watching every dollar closely, the research shows that, when designed prudently and implemented properly, noncash inducements can actually be more effective in capturing employees’ attention and producing measurable results than more expensive forms of compensation.

About the Author(s)

Melissa Van Dyke is president of The Incentive Research Foundation. The Incentive Research Foundation (www.TheIRF.org) funds and promotes research to advance the science and enhance the awareness and appropriate application of motivation and incentives in business and industry globally. The goal is to increase the understanding, effective use, and resultant benefits of incentives to businesses that currently use incentives and others interested in improved performance.