This may come as a surprise, but cash or gift cards are not always the most effective ways of thanking employees for doing a great job, according to the latest research. But this much remains true: The study conducted by O.C. Tanner and Aon Hewitt also finds that recognition programs remain a great way to increase employee engagement by as much as 40%--even in situations where pay is substandard.

Neil Shastri, Aon Hewitt’s leader of global insights and innovation, notes that although rewards and recognition programs are part of the employment package, they differ from other employee benefits that are available to all employees.

“Typically, recognition programs are more linked to performance,” he says. “Some companies actually gear these programs to solid performers rather than high achievers who may be eligible for bigger pay raises and enhanced career opportunities.”

What’s working?

When asked which recognition programs are most effective in their organization, 46% of employers responded that both monetary and non-monetary awards are equally effective; 43% believed monetary awards are more effective than nonmonetary awards; and 12% reported that nonmonetary awards are of greater value. Therefore it is not surprising that many companies employ several forms of recognition.

The most popular vehicle is a thank-you from peers, managers or next-level managers (74%), with over half delivering their thanks in the form of a handwritten note (54%). Public recognition by senior management (66%), gifts/merchandise (64%) and trophies and symbolic awards (55%) also continue to be popular.

More generally, the study found, the top three reasons employers offer recognition programs are to improve engagement, drive employee performance and build a culture of recognition.

As far as cash goes, Mike Byam, CEO of recognition and rewards company Terryberry, says companies often gravitate toward gift cards and other forms of cash, but these don’t necessarily have the long-term impact the employer is looking for.

“If I give you a $100 VISA card, you may use it for gas, but after you fill the tank you are not driving around thanking your employer,” he says. “However, tangible, symbolic awards like plaques or award rings that have some visible connection to the employer are more powerful.”

Byam also recognizes the value of a handwritten note. “If you received 600 or 1,000 emails this week, [the fact that] that your manager or peer took the time to write a note makes it memorable. Instead of hitting ‘delete,’ you’ll post it on your bulletin board or keep it in your top drawer.”

He says companies typically evaluate the success of their rewards and recognition programs using surveys or based on changes in employee turnover. “We may go into a company where the engagement survey results show a need for recognition is No. 1 on employees’ list of identified needs,” he says. “We know we have addressed their problem if a year later it has dropped to No. seven or eight.”

Recognition at U.S. Bank

Rewards and recognition programs frequently start out as ad hoc initiatives in one or more departments, but Gary Beckstrand, vice president of the O.C. Tanner Research Institute says companies eventually see an opportunity to consolidate and bring things together to create consistency and better utilization.

Such was the case at U.S. Bank, the fifth largest commercial bank in the country with over 3,000 branches and 65,000 employees in 25 states. Stephanie Hoffman, the company’s senior vice president and director of employee recognition, says that recognition is an important part of the bank’s culture. ”When you look at recognition and what it stands for, I think that’s the piece that engages our employees’ hearts and not just their minds,” she explains.

“Prior to 2013, our recognition program was all over the map with little uniformity,” she says. “We really had a cash-based program that was built around our VISA rewards cards that allowed managers to give employees a VISA card at their own discretion.”

The status quo seemed to be working until a company event was planned to recognize people, and it became apparent that there wasn’t a consistent, efficient or easy way to do so. “That was the catalyst for us to take a step back, look at our program and figure out what’s effective, what’s not and how to make it better for management and employees,” Hoffman continues.

After extensive consultation with internal stakeholders, the bank developed a single program with both monetary and nonmonetary components. “The nonmonetary portion is ‘e-comm,’ or electronic thank-you notes employees can send managers and one another,” Hoffman says. “On the monetary side, we have points-based ‘shield’ awards (bronze, silver, gold and platinum) for which employees or managers can nominate each other.

“We use O.C. Tanner’s platform, and points are awarded for various accomplishments,” she says. “Employees can bank these points or immediately go online to shop for a whole host of different products like technology, cooking classes or VISA rewards cards. There is something for everyone.”

Engaging Millennials

Study results show that the effectiveness of recognition programs varies by generation and employment status. Recognition programs are most effective among full-time employees (69%), baby boomers (63%) and Generation X (63%). But only 56% of millennials see the value in their company’s program.

Shastri believes that to be effective, the type of reward or form of recognition must be meaningful to the individual. “Millennials are looking for experiences rather cash or than gift cards,” he says. “Give a group tickets to a popular rock concert or an NFL game. They won’t soon forget the event.”

Byam notes that the employee-recognition world has developed tools to engage certain groups, but, he says, “we’ve found that programs that leverage social media and increase the frequency of recognition are not only powerful for millennials, but they have an impact across the whole organization.”

Successful recognition programs require time. Nearly half of the programs respondents found most effective have been in place for more than five years. But frequent review and updating of programs is also important to make sure rewards and recognition continue to be relevant to employees.

“We look at our compensation and health programs at least once a year, so it only makes sense to evaluate these programs regularly to learn how we can engage our employees more deeply in a culture of recognition,” Byam says.

Enabling success

When it comes to ensuring the success of rewards and recognition programs, the study reveals that senior leadership endorsement and a company culture that supports change are at the top of the list. “If it’s merely an HR-sponsored program, you are less likely to get senior leadership participation and buy-in,” Beckstrand says. “But if the program connects in a straight line to a strategic purpose that cuts across the whole organization, that’s a very different story.”

Hoffman agrees that active participation by senior leadership is critical. “What worked for us is getting approval from senior leaders in all of the divisions to participate in the program, so everyone was behind it from the get-go,” she says. She also believes that consistency of program criteria and a simple tool that is accessible to all employees have contributed to the success of the bank’s revamped program.

However, she says, there is always the risk that if a program is put on “auto-pilot,” people will forget about it and participation and satisfaction will drop. In the first 12-18 months of the U.S. Bank program, she says, there was a big promotion every quarter to create momentum and awareness.

“Right now we have one big annual promotion we call Employee Appreciation Month. This year it happened in March,” she says. But the majority of our communication time is spent focusing on management and helping them develop stronger skills around recognition.”

Hoffman says recognition is also supposed to be fun, so her staff is always trying to think outside the box when it comes to promotional events. A recent recognition road show called “Best in US” was designed around the notion of a café. “We brought employee appreciation days to two of our operation centers and had managers on hand all day to engage with employees, serve them treats, answer questions and celebrate,” she says.

While budgetary constraints are one reason some organizations choose not to implement a recognition program, Beckstrand believes such programs are relatively inexpensive, compared to the overall compensation package. “Typically we see a range of spending, broadly ranging from .5% to 2% of payroll,” he says.

According to the survey, this modest investment can result in a significant ROI for organizations, boosting employee engagement by 40% even in companies where wages are sub-standard.

Shastri doesn’t think this result is surprising. “Employees recognize that in this volatile economic environment, they can’t expect crazy pre-recession salary increases,” she says, “but low-cost or no-cost recognition that they are making an important contribution to the business goes a long way toward increasing employee morale.”

Beckstrand agrees. “Recognition not only pays dividends during tough times, but it creates a sense of connection and loyalty that continues to drive efforts in the good times.”

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