Tough economic times require management to think creatively about rewarding and retaining employees, which is why many managers are leveraging non-monetary means, such as employee recognition, to motivate their workforces.

Throughout the downturn, many employers failed to find (or even look for) ways to improve the work experience for their employees. An employer’s market has led some to cut more, demand more and compensate good workers by telling them they’re lucky to have a job.

“The fallout from the actions employers have taken in response to the recession is now coming to light, and it is significant,” Laura Sejen, global director of strategic rewards consulting at Towers Watson, recently said. “Having less engaged and committed workers is a major concern for employers. This could have a long-lasting and detrimental impact on productivity, quality and customer service, as well as an increase in the risk of companies losing their best employees.”

According to the 2009/2010 U.S. Strategic Rewards Report from Towers Watson and World at Work, many companies have reduced the value of their core reward programs since the economic downturn began. For example, companies’ funding levels for bonuses have dropped, from 82 percent in 2008 to 75 percent in 2009.

Slightly offsetting this trend, perhaps, is that managers are leveraging any non-monetary means they have to motivate their workforces during a down economy. Of the companies surveyed by Towers Watson and World at Work, nearly a quarter have increased their use of recognition programs since the downturn began.

“Such programs offer a cost-efficient opportunity to recognize the contributions of top-performing employees at a time when the average company has reduced core forms of compensation and benefits,” according to the U.S. Strategic Rewards Report.

While many firms are unable to recognize people for their work with financial rewards right now, that may not matter so much: Financial rewards are important to some people, but research suggests that compensation is not even among the top five reasons why employees are likely to ditch their employer when the economy turns around.

At the Society for Human Resource Management, Tom McMullen, vice president of the North American Reward Practice at Hay Group and author of the firm’s 2009 Reward Next Practices Research report, recently recommended managers “help employees to view their pay as more than base salary increases and bonuses. Total rewards include recognition, meaningful work and career opportunities.”

Research by McKinsey Quarterly recently underscored the opportunity. Findings indicated that “three noncash motivators” — praise from managers, leadership attention (such as one-on-one conversations) and an opportunity to lead projects or task forces — were viewed as “no less or even more effective than the three highest rated financial incentives: cash bonuses, increased base pay and stock or stock options.

“The survey’s top three nonfinancial motivators play critical roles in making employees feel that their companies value them, take their well-being seriously and strive to create opportunities for career growth,” McKinsey continued. “These themes recur constantly in most studies on motivating and engaging employees.”

These motivators might best be summed up by the top non-monetary reward for employees who do their job well: recognition. Most people want their managers to realize that they’re there, they’re working hard and they’re making a difference.

The Power of Recognition
A recent two-part series of reports from Towers Watson found that manager-delivered recognition of employee performance can boost engagement “the way a turbocharger cranks up a sports car’s horsepower.”

Even in low-engagement workplaces, recognition from immediate supervisors and managers increases employee engagement by almost 60 percent. In organizations where opportunity and well-being (two principal engagement drivers) are clearly part of the culture, the effect of manager recognition can increase employee engagement by almost 20 percent.

According to Towers Watson, the three main drivers of managers’ recognition are as follows:

• Inclusiveness — Everyone must have the opportunity to excel and be appreciated, and the criteria and rules must be clear and fairly applied to all employees. Managers must not play favorites. It’s basic, but it remains a consistent concern of employees. The four requirements for fairness are 1) a fair process, 2) a fair outcome, 3) fair treatment and 4) a fair explanation.
• Communication — “In the context of recognition, communication means more than just keeping information flowing. It means being unambiguous about the connection between performance and rewards of all types.” For communication to foster employee empowerment, Towers Watson advises managers do three things consistently: “Be attentive (that is, willing to listen), be receptive (willing to acknowledge the value of what they hear) and be responsive (willing to take action).”
• Trust — Reciprocal trust between employer and employees establishes the emotional basis for effective recognition and, ultimately, helps build employee and employer confidence in each other and in the organization. Managers should 1) engage in candid conversations, 2) define clear and relevant performance targets and 3) hold each employee accountable for the results. According to Towers Watson, “The ultimate payoff closes the circle: Performance produces results, outcomes justify trust, and recognition for performance elevates engagement.”

Managers who focus on these few items can enjoy a significant payoff not only for their team, but for their organization as a whole. These are seemingly basic requirements for good management, but each has important aspects and requirements that can increase or decrease the effect of recognition on employee engagement. Rebuilding for future success requires that managers recognize their employees’ efforts.

Related

Why Having Engaged Employees Matters

“I’m Not Paid Enough to Fully Engage In My Job. But That’s Only Half the Point.”

Making Disengaged Employees Feel Valued

Are Managers Communicating Enough?

24 Questions to Ask Employees

Employees Tell Managers to Shut Up and Listen

Don’t Trust Your Boss? Join the Club

8 Things We Want from Work

Resources

Economic Downturn Leading to Decline in Employee Commitment, Morale
Towers Watson, Sept. 21, 2009

2009/2010 U.S. Strategic Rewards Report: Looking Toward Recovery – Focusing on Talent and Rewards
Towers Watson (formerly Watson Wyatt) and World at Work, Sept. 21, 2009

Handling Bonus Season: Frustrated Employees, Nervous Managers
by Tom McMullen
Society for Human Resource Management, Dec. 4, 2009

Reward Next Practices Research
by Tom McMullen
Hay Group Insight and World at Work, May 14, 2009

Motivating people: Getting Beyond Money
by Martin Dewhurst, Matthew Guthridge and Elizabeth Mohr
McKinsey Quarterly, Novermber 2009

‘Turbocharging’ Employee Engagement: The Power of Recognition From Managers – Part 1
Towers Watson (formerly Towers Perrin), originally published April 2009, republished December 2009

‘Turbocharging’ Employee Engagement: The Power of Recognition From Managers – Part 2
Towers Watson (formerly Towers Perrin), originally published May 2009, republished December 2009