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Compensation & Benefits

Published March 2009

Rewards Can Backfire

 

  Derek Irvine

Layoffs, bankruptcies, the credit crunch, mergers, closings — the headlines are impossible to ignore. Companies across industries and around the world are dealing with similar complex challenges due to the declining state of the global economy. Now is not the time for employees to give in to fear and work less hard because they believe they will not be recognized for their efforts.

Talent leaders can address these employee concerns while remaining fiscally responsible, encouraging greater productivity and sustaining growth by reconsidering employee recognition and reward programs. Such initiatives can be a lever to enable an organization to ride out the recession and position itself strongly for the eventual upturn.

Strategic employee recognition programs reaffirm the value of employees' contributions, acknowledge the additional work and effort they likely are being asked to perform and can allay rumors through frequently updated executive messages.

But accomplishing these goals requires careful planning. Without proper consideration, implementation and direction, employee rewards easily can backfire. Improperly applied recognition and reward programs can have the wrong impact, deliver the wrong reward and ultimately cost the company in reduced employee engagement and wasted investments on unwanted rewards.

The 'Wrong Impact' Backfire

Relying on cash-based incentives or tactical rewards programs almost always will produce unintended consequences.

With the cash bonus pool drying up and employees on cash incentive performance tracks unable to meet performance goals, many employees are choosing not to contribute their best efforts because their goals and accompanying incentives are out of reach. Yet, many companies continue to rely on cash-based recognition programs. These don't help maintain program consistency on a global scale, nor do they ensure local participants feel motivated and involved in the organization. Further, people become habituated to cash no matter how much they receive, and view it as an entitlement.

Simple recognition delivers better results than cash. A Japanese National Institute for Physiological Sciences study found "paying people a compliment appears to activate the same reward center in the brain as paying them cash." Additionally, consulting firm White Water Strategies found acknowledging staff achievements — essentially praising employees — had the same impact on job satisfaction as a 1 percent increase in pay, which would equal 5.2 billion pounds for U.K. businesses alone. These 2008 studies reinforce research results from a 2004 University of Chicago study that found noncash incentives were 24 percent more powerful at boosting performance than cash incentives.

Managers often believe they can bypass these cash incentive problems by keeping a goodie drawer of tchotchkes or gift cards to hand out to employees as rewards. Many companies already are investing significantly in incentive or reward programs of this type, but the majority are disparate, unfocused and buried in the expense budget and do not deliver the full return on investment that is possible with strategic recognition.