This article outlines the role of recognition in performance-oriented companies and provides a step-by-step guide to implementing a recognition program. It highlights the latest research on the subject and describes other helpful resources. For related books, see Article 9500, Books and Online Services.

DEFINITION

Performance-oriented companies seek to mobilize all employees and stakeholders, notably dealers and distributors, toward clear business objectives measured by sales, profits, customer satisfaction, and productivity. For these organizations, employee recognition is a vital part of continually communicating and reinforcing ever-changing goals.

Perhaps the best example of this strategy is Mary Kay Cosmetics, which goes to great lengths to recognize the individuals who help achieve the company's goals. For such organizations, recognition goes far beyond the traditional role of service awards.

Although the two often seem interchangeable, recognition should not be confused with incentives. Recognition involves all the techniques that draw attention to employees who perform. Incentive programs generally use selective techniques to induce people to achieve a specific objective, such as increasing sales. Recognition can be spontaneous, even to the extent that there is no formal announcement that the organization has a recognition program. Incentives are designed to act as carrots, and they're publicized well in advance to whip up enthusiasm for winning a tangible reward.

In contrast to service-award programs, which by their very nature entail holding ceremonies on a regular basis, performance recognition should be a surprise. That way, people are left to concentrate on doing their best instead of becoming unduly focused on the reward itself.

BACKGROUND

Once a sleepy domain, employee recognition has entered a new era as corporations begin to assess the impact of downsizing on long-term productivity, profits, and the quality of products and services.

Traditionally, recognition meant service awards. In recognition of their years spent with a company, people received an escalating series of awards along with a mention in the employee newsletter. If they stayed until retirement, many walked away with a gold watch. Sometimes, companies broadened these programs to include recognition for other actions, such as exemplary customer service, but mostly they were confined to rewarding tenure.

Today, it's awkward for most big companies to focus attention on tenure. Employees in a downsized company are likely to mock a program that rewards someone for having "survived" 20 years. An ambitious service-awards program during a period of downsizing only draws more attention to an unpleasant situation. No wonder that traditional service awards suppliers have seen their old-line business decline.

HUMAN RESOURCES AT RISK

While many organizations are reluctant to pay too much attention to traditional service awards, it's apparent that something has to be done to restore morale in organizations racked by downsizing. Mounting evidence suggests that downsizing has adverse effects on a company's ability to harness human resources to meet competitive challenges.

A recent study by Deborah Dougherty of Montreal's McGill University and Edward Bowman of the University of Pennsylvania's Wharton School, concludes that, by destroying the informal human links that facilitate the practice of putting bold ideas to work, downsized firms risk losing the ability to innovate. In another study, Mitchell & Co., a Massachusetts consultancy, concludes that, while downsized companies enjoy a brief surge in profitability, they fall behind their competitors after three years.

Clearly, rabid cost-cutting through downsizing exacts a toll on employee performance, which seems ironic since raising productivity is often the pretext for downsizing. Human beings are the most complex and delicate of all company resources, and, as companies begin to rethink the relationship between downsizing and long-term profitability, the role of employee recognition is bound to grow.

IMPACT ON MARKETING

Despite reams of research suggesting a strong correlation between employee commitment and customer satisfaction, many organizations tend to overlook this equation in their strategic planning. For, even though both research and common sense strongly suggest that happy, committed employees work more productively and provide better service, corporations have difficulty relating this to profits. So far, the financial analysts have found it easier to calculate the cost savings of layoffs.

According to research conducted by Harvard professor Leonard Schlesinger Jr., there is a clear connection between employee satisfaction, customer service, and profits. He calls this link the "service profit chain," in which employee satisfaction leads to good service which, in turn, leads to customer satisfaction resulting in increased profits.

A number of companies have quantified the effect of customer loyalty on sustainable profits. Indeed, it is a time-honored precept of marketing that repeat customers offer the best return on the marketing investment. But companies rarely examine each link in the chain, so they are likely to overlook the relationship between employee satisfaction and profitability.

Schlesinger, however, cites Taco Bell as a welcome exception. Through internal research, the fast food chain found that "20 percent of the stores with the lowest turnover rates enjoy double the sales and 55 percent higher profits than the 20 percent of stores with the highest employee turnover rates." In other words, happy employees lead to happier customers. And, if you think that rule applies only to fast food, think again.

RESEARCH

Two major studies in recent years support the conclusions of Schlesinger and his colleagues. Columbia University's Graduate School of Business examined the human resources policies of 495 businesses and correlated the data against the companies' financial performance. The results were excerpted by Daniel J.B. Miller, David Lewin, and Edward Lawler III in Alan Binder's Paying for Productivity (The Brookings Institution, 308 pp., $29.95) and also examined by Casey Ichniowski in a study called "Human Resource Management Systems and the Performance of U.S. Manufacturing Businesses" (National Bureau of Economic Research working paper 3449). Both writings concluded that firms with merit-based pay systems, flexible job classifications, good communications systems, and a commitment to employee training enjoyed greater productivity and profits than those that didn't.

A study of Fortune 1,000 companies ("Employee Involvement and Firm Performance," presented by authors David I. Levine, Edward Lawler, Susan A. Mohrman, and Gerald F. Ledford, Jr. at a 1995 conference on What Works at Work) examined the value of employee involvement through such management practices as power sharing, technical and social training, and the free flow of information throughout a company. The conclusions generally supported the relationship between high employee involvement and higher productivity and profits.

While smaller businesses generally take employee commitment more seriously than giant corporations, there are notable exceptions in the ranks of large companies, such as Federal Express, Starbucks Coffee, and Chick Fil A. In general, though, executives at smaller companies tend to be close to the action and are thus in a position to see the impact of employee commitment more clearly than their counterparts at mega-corporations.

FACTORS GOVERNING EMPLOYEE COMMITMENT

What makes some employees committed and others indifferent? Research suggests that there is no quick fix. The organization must be geared from the top down to value employees in practice as well as press release. Pay is obviously an important element, but so are company-wide communication, a commitment to training, flexibility, positive feedback, and tangible recognition. In general, employees should feel strongly connected to the organization and valued. Key elements of employee satisfaction are:

• Sense of purpose. People work best when working toward tangible goals or when building something whose outcome they can see. This requires management to have clear vision of what is being built and be able to communicate it through middle management to the rank and file.
  
  
• A sense of being compensated fairly. Employees do not necessarily need to feel rich, but they want to feel they are compensated along the lines of other people doing similar work.
  
  
• A feeling of appreciation. People who work hard for somebody want to feel appreciated or recognized for their work. The manager who believes that people need no recognition and should be content simply to have their jobs will not get the most out of his or her employees.
  
  
• A feeling of participation. Contrary to the belief of some managers, most employees want to have a say in the way their jobs are done. They believe, often correctly, that management overlooks numerous ways to improve quality and efficiency.
  
  
• Inspired middle management. Tapping employee commitment requires a shift from a dictatorial management style to one of coaching, encouragement, and empowerment. This is not an easy transition for some managers who have worked for years to become the boss. A corporation's best motives can be thwarted by middle management enamored with power.
  
  
• Top-management commitment. Unless the CEO and senior executives believe that employee commitment is as important as product development, finance, and marketing, there is no way that the full power of commitment can be tapped. If companies use recognition cynically, employees will quickly catch on. In most cases, it's better for autocratic companies to avoid recognition strategies that leave them open to accusations of hypocrisy.

ELEMENTS OF TRADITIONAL RECOGNITION PROGRAMS

Despite reams of research suggesting a strong correlation between employee commitment and customer satisfaction, many organizations tend to overlook this equation in their strategic planning. For, even though both research and common sense strongly suggest that happy, committed employees work more productively and provide better service, corporations have difficulty relating this to profits. So far, the financial analysts have found it easier to calculate the cost savings of layoffs. It is appropriate for organizations to recognize and reward employees for tenure, if that's an integral part of the corporate culture. Traditional recognition programs allocate a set sum for each year of an employee's tenure which is used to buy them increasingly more valuable awards for each service milestone. Award options typically include pins and jewelry, clocks and watches, and gift items, such as statuettes, vases, bowls, and even dinnerware. Traditionally, these programs emphasized continuity, so that all employees who reached a certain milestone received roughly the same item.

Today, things aren't so cut and dried. To the dismay of old-line recognition suppliers, which have always emphasized the trophy value of an award, many organizations give employees greater flexibility in choosing their awards. Some even award gift certificates, consumer products, or travel awards.

There is little point in conducting service-awards programs unless you sincerely value service. That's why a genuine expression of gratitude by management is at least as important as the awards themselves. Companies that are serious about recognition mark major milestones at company meetings or at special powwows with top executives. Almost all publicize the milestones in the corporate newsletter.

STEPS TO IMPLEMENTING RECOGNITION PROGRAMS

Today's emphasis on performance in business has created a new application for recognition programs focusing on performance.

Harvard professor Alfie Kohn, in his book, The Case Against Incentives (Houghton Mifflin), argues forcefully against trotting out the usual array of incentives. He suggests that they can create an atmosphere of destructive competition within a company, because they focus on the wrong agenda: winning instead of working better.

Understanding the basics of recognition can help companies address some of the problems raised by Kohn and enable organizations to keep the emphasis on steady improvement in employee performance.

Here's how to introduce a recognition program to your organization:

1. Determine your objectives. Just what are you trying to accomplish? Reward tenure? Performance? Objectives should relate to one another, and there should be no more than three.
   
   
2. Analyze the demographics. Who are these people working for us? How do they recognize one another in their own cultures? What do people have in common?
   
   
3. Determine the statement you want to make. What should recognition say about your organization and it's goals? How lavish do you want to appear?
   
   
4. Develop a communications strategy. How will people know about this? Should it be through a newsletter? a mailing? a brochure? in the employee welcome kit? How will you remind them of it throughout the year?
   
   
5. Develop an awards strategy. Recognition programs without gifts ring hollow after a while, but lavishness usually is not essential. Sincerity is. That means selecting a gift that reflects the kind of care that you appreciate when someone gives you a birthday present. It's the thought that counts. Keep in mind the company's culture, the nature of the audience, the need for at-home trophy value, the age and pace of the organization, and its prospects for growth.
   
   
6. Involve employees. Before doing anything, set up a committee of employees to obtain recommendations from the people who actually will be affected by the recognition effort. Bring in an outside expert, if necessary. If performance, rather than tenure, is your objective, make sure the committee gets involved in setting the goals, establishing the means of measuring performance, and reporting any organizational obstacles to improvement that may have escaped management's attention.
   
   
7. Develop a meaningful presentation strategy. If you are serious about recognizing people, do it right. Amaze recipients with the way you recognize them in front of their peers. Many companies hold annual awards banquets or meetings in which people receive their awards and thanks from a top executive.
   
   
8. Rethink recognition on a regular basis. One of the primary goals of a service-awards program is to emphasize that there really is a future for people in today's corporations. As such, the program can be tinkered with from year to year, but generally it's expected to stay within the bounds of tradition. Recognition for performance, however, changes regularly, along with goals, market conditions, and financial results. A recognition program that operates on autopilot will have little impact.

BOOKS

The Loyalty Effect, by Frederick Reichheld, does not address recognition programs specifically, but it's a landmark book on the power of employee and customer commitment. $24.95. Available through Amazon.com, $17.47.

The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction, and Value, by James L. Heskett, W. Earl Sasser, and Leonard A. Schlesinger. You won't find the secrets to motivating the middle 60 percent in this book, but you will find ample reasons why you should try. Drawing on their years of management consulting experience and academic research, the authors provide compelling evidence that profit and growth can be directly linked to both customer and employee satisfaction. They also provide a macro recipe for "capitalizing on the service profit chain," including management, marketing, operations, and measurement strategies. $30. Available through Amazon.com, $21.

The Loyalty Link: How Loyal Employees Create Loyal Customers, by Dennis G. McCarthy. The author makes the point that the customer-satisfaction "panacea" can't work without loyal, motivated employees. He spells out his formula for developing a loyalty-driven culture that empowers employees to strive to create customer loyalty, and he devotes a chapter to fostering teamwork. The book provides ammunition for managers who are arguing for a special focus on improving customer and employee satisfaction in their organizations. $19.95. Available through Amazon.com, $13.97.

Innovative Reward Systems for the Changing Workplace, by Thomas B. Wilson. Although several years old, this book takes a thorough look at reward systems in the context of today's customer- and performance-based management styles. The author tells how to: make pay relate to achievement, foster a sense of stake in the company, update the traditional performance appraisal process, and measure customer-based performance. $32.95. Available through Amazon.com, $23.07.

The New Business Values for Success in the Twenty-First Century: Improvement, Innovation, Inclusion, Incentives, Information, by Patricia Rouner Morris and John Persico, Jr. The authors argue for a new management philosophy that stresses five key values: innovation, improvement, incentives, information, and inclusion. While their plan requires long-term commitment from top management to introduce broad changes, the model makes sense. Their theme emphasizes creating organizations that are "environmentally friendly and more successful in terms of adding value for customers and society." Available through Amazon.com, $49.95.

The Reward Plan Advantage: A Manager's Guide to Improving Business Performance Through People, by Jerry L. McAdams. You will get an authoritative overview of incentive and reward plans, including setting objectives, measures, and assessing your situation. The author describes recognition and group incentive plans, as well as types of awards and implementation. This book comes closer than most to addressing brass-tacks programs that managers at almost any level of an organization can implement. Jossey-Bass Business and Management Series. Available through Amazon.com, $34.95.

How to Design & Implement a Results-Oriented Variable Pay System, by John G. Belcher, Jr. Here's a detailed process for implementing profit sharing, gain-sharing, and goal sharing. You'll get a step-by-step approach that includes organizing the design team, establishing baselines and measurement tools, and determining the frequency and methods of payout. Chapters cover: multi-tiered and small-group systems, selecting and evaluating measures, assigning values to gains or goals, establishing baselines, and sharing the gains. You'll find more implementation details than in many business books. Available through Amazon.com, $55.

Secrets of a Successful Recognition System, by Daniel C. Boyle. This short book provides a simple program designed especially for companies trying to break down barriers between management and the union. Based on the importance of thanking employees, the book provides some practical ideas, but its approach seems a bit simplistic for complex labor-management issues. There are some excellent ideas here for managers who deal with unions, even if you can't apply the author's entire program. $25. Available through Amazon.com, $17.50.

Compensation for Teams: How to Design and Implement Team-Based Reward Programs, by Steven E. Gross. Managers looking for a team approach will find particular satisfaction here. The author looks at the critical issue of aligning an organization's compensation, culture, and strategy, and then delves into the steps involved with designing and implementing team-based reward systems. Chapters cover such issues as incentive compensation, recognition awards, and the architecture of team pay. Available through Amazon.com, $65.

In Praise of Good Business: How Optimizing Risk Rewards Both Your Bottom Line and Your People, by Judith M. Bardwick. Drawing upon her work both as a psychologist specializing in management psychology and her 15 years as a consultant to the Fortune 500, Bardwick develops a bold new management paradigm for maximum employee productivity. She suggests ways to challenge employees where risk is at an ideal level, and creates a results-driven organization. Characteristics of successful organizations and management are examined in terms of achieving change through driving for measurable success and rewarding and punishing, thereby bringing about a results-driven mind-set requiring: urgency leadership, purpose, collaboration, selection, method, trust, and commitment. $24.95. Available through Amazon.com, $17.47.

TYPES OF AWARDS

Traditional service-awards programs generally used jewelry or commemorative items, such as figurines, desk or wall clocks, even tableware or flatware. Often, jewelry is given in such a way that an additional diamond or other precious stone can be mounted at special anniversaries. If this approach is taken, work with a supplier that can offer continuity of product, so that the models you need will be available in the years to come.

Many organizations have moved away from such commemorative items, and now award consumer products-to the chagrin of traditional suppliers. These companies argue that recognition awards should not appeal to the material spirit but rather to the sense of satisfaction for being recognized.

WHERE TO FIND SUPPLIERS

Once you have decided the role that recognition will play in your organization, you'll want to talk to companies that provide the goods that get the job done. To find suppliers in the first three of the categories below, look in the directories of Incentive magazine (212-592-6263) and Potentials magazine (612-333-0471) as well as directories published by The Motivation Show (630-434-7779) and The Premium Incentive Marketplace (800-765-7615).

Recognition awards suppliers. Most of these companies grew out of the jewelry business to develop comprehensive service-awards programs. They offer attractive catalogues, promotional support, and a full line of products.

Incentive companies. These companies range from large organizations that can handle all aspects of recognition and incentive programs to small shops that sell merchandise and travel awards.

Consumer products companies and travel suppliers. Most major consumer products companies and travel suppliers have corporate sales departments that, among other things, sell their products to corporations for incentive and recognition programs. They generally have independent sales representatives throughout the country. For a list of representatives in your area, call the Incentive Manufacturers Representatives Association (703-610-9021).

Promotional products distributors. Almost any of these suppliers can provide gifts and trophies needed for recognition programs. A few of the largest can provide complete programs that include communications, tracking, and drop shipping. For a directory of distributors in your area, call the Promotional Products Association (972-252-0404).

To find a supplier, go to #9520, Supplier Finder

Company Listings:

Lillian Vernon. Corporate Sales Division offers a variety of services for all your business needs ranging from personalized corporate gifts to premiums, incentives, promotions, awards, and gift certificates. Custom programs can be developed. Contact Regina Smith, business coordinator, at 914-925-1593.

RECOGNITION IN ACTION

Recognition can be as broad a concept as you want to make it-and some would say the wider the better. The chairman of one small company gets to the office before everyone else so he can greet each employee personally every day and offer them a cup of coffee. Is this time well spent? A human resources specialist has a formula to answer that question: Multiply the number of people who work for you by two minutes and you'll come up with the amount of time you should spend every week getting to know people.

Going beyond theories of empowering people on the front lines or channeling their efforts with incentives, many companies realize that recognizing people as individuals is essential for long-term success. And don't bother with a recognition program unless you're prepared for the long haul. Many a well-meaning effort has "flopped" because management killed it before it had a chance to get started.

Do formal programs work in an atmosphere where downsizing is in the air? Nothing can heal the hurt of being terminated, but showing concern can cushion the blow not only to those who get the axe but to those who remain. When one company with a paternalistic tradition decided to cut its staff drastically, it hired counselors to help people find new jobs and went out of its way to explain its reasons for downsizing so that the rest of the staff would not be subject to "survivor's syndrome."

Recognition penetrates where money can't. Some highly-compensated salespeople fall away from the company and eventually quit because they feel management ignores them and fails to support their efforts to serve the company's best customers. From its earliest days, Federal Express saw that, unless it treated people with respect they were unlikely to care how they treated customers. Thus, at the core of its personnel policy is a procedure whereby employee complaints can be heard and, if necessary, appealed right up to the chairman. The policy is described to new employees and it's also posted conspicuously in every Fedex workplace and van.

Following are two examples of how recognition contributes to corporate morale in very different ways:

• Campbell Soup. When a division in Paris, TX, was honored with a major quality award by an industry group last fall, management immediately made plans to share the glory with the 1,300 employees who made the product. It contacted Recognition Resources Inc., a distributor that puts together recognition programs. The assignment: Come up with a customized item that would let people reap satisfaction for their achievement over the long term. Because of the requirement for enduring value, Recognition Resources hit on the idea of commemorative watches for the workers. The distributor turned to SMH (U.S.) Inc., Lancaster, PA (717-394-7161), which handles such brands as Longine, Tissot, Hamilton, and Swatch, and asked the company to propose five designs. "This was a one-shot deal to recognize performance," says Rick Miller, director of sales operations for SMH, "so Campbell could consider an upscale award." In the end, a Hamilton wristwatch that retails for $110 was selected for the program. Designers at SMH devised a way to customize it by putting a map of Texas on the face, along with the Campbell corporate logo and a globe symbolizing the award. "It was a major investment for the company," says Miller, "but every time an employee looks at the watch they'll be reminded of the quality award and the opportunity of other rewards for good performance in the future." SMH's performance was worthy of an award, too: It completed the project in six weeks so that Campbell could present the watches to employees before the year-end holiday break.
  
  
• Chemical Financial Corp. Deciding to revitalize its traditional service award program last year, Chemical Financial, Midland, MI, recognized that how an award is presented is as important as what is presented. It retained The Tharpe Co., a Statesville, NC, recognition company (704-872-5231), to design a program that would honor people for their years of service with something other than the emblematic jewelry that had been presented in the past. Applying his OMNI Recognition System, Tharpe president James Marsh came up with a way for employees to select their own awards. There were seven levels ranging from 5 years of employment to 35, and honorees at each level could choose from 35 items, including stereos, clocks, jewelry, and framed prints. Tharpe put the Chemical Financial logo on packets and sent one to each person. Inside were sheets showing the brand-name merchandise along with a phone number for ordering. The recipient selected an award, but, rather than just shipping it out, Tharpe introduced a two-step procedure to make the most of the occasion. First, each employee received a certificate at a general meeting of the company. Then, in a smaller ceremony at their department, the award itself was presented as the recipient's co-workers looked on. Thus, says Marsh, people not only got a choice of awards but the company made the most of the presentation. It also saved 20 percent compared to what it had previously paid for service awards.