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Special Report on Rewards and RecognitionBack in a Giving Mood

September 30, 2009
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Related Topics: Recognition, Reward (Recognition) and Incentive Programs, Corporate Culture, Motivating Employees, Tools, Compensation, Benefits
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When the economy tanked last year, one Fortune 500 food industry company responded by chopping its 2009 budget for employee rewards and recognition by half, to $500,000.

Then the CEO paid a round of first-quarter visits to employees in the field. Everywhere he went, people asked about the scaled-back program: What had happened? It made them feel good and they were still meeting achievement milestones —didn’t that count for anything?

It did. Back at headquarters, the CEO directed the rewards and recognition budget to be reinstated to its 2008 level of $1 million, plus $200,000 for retroactive payments to employees whose milestone-setting work hadn’t been recognized during the time budget cuts had been in effect.

It was good news for the company’s employees—and for TharpeRobbins Co., the $90 million Statesville, North Carolina, firm that runs its rewards and recognition program.

It’s also not an isolated incident. After a rocky first quarter, rewards and recognition program vendors have seen an uptick in business as companies that cut workers or salaries because of the recession look for other ways to engage and retain remaining staff without breaking the bank.

“If you have a cut or you’re furloughing people but you still value their contribution, rewards and recognitions become even more strategic,” says Brenna Garratt, CEO of The Delve Group, a New York branding and marketing firm for HR outsourcers. “It sounds bizarre, but there are a lot of people who aren’t motivated by money, but are by recognition. Vendors who are able to capitalize on that can have good years in down times.”

Determining exactly how much better North American rewards and recognition vendors are doing is difficult since most are, like TharpeRobbins, privately held. However, executives at several vendors interviewed for this report expect healthy revenue increases this year and project ending 2009 in the black. “We’re doing better than we thought and I don’t think we’re alone,” says Anthony Luciano, TharpeRobbins’ senior vice president of sales and marketing. “We’re adding a lot of new customers.”

Vendors are benefiting from the increased emphasis Fortune 1,000 companies are putting on employee recognition programs. Close to 80 percent of “best in class” employers have some type of formal program in place, according to a June survey of 450 companies’ employee engagement practices from Aberdeen Group, the HR market researcher.

In a separate survey of 480 U.S. companies completed this year, HR consultant Towers Perrin found that instead of using training and personal development to drive employee engagement as they have in years past, companies this year focused their retention efforts on the basics. Those include job security and “anything they can do to get high performers to feel appreciated,” says Ravin Jesuthasan, a Towers Perrin employee rewards and performance analyst.

The year didn’t start off well. On top of the recession, rewards and recognition program spending made headlines when financial institutions receiving federal government bailouts appeared before Congress to account for lavish incentive trips executives took to swanky resorts on the public’s dime. Some businesses reacted to the scrutiny—dubbed “the AIG effect”—by curbing their own programs, which typically run about 2.7 percent of total annual payroll, according to WorldatWork.

“It’s so large, it’s an easy target,” says Roy Saunderson, president of Recognition Management Institute, a Montreal-based employee recognition program consultant that works with Fortune 1,000 clients. (The institute is a wholly owned subsidiary of Rideau Recognition Solutions, a Montreal employee recognition program vendor. Executives say the institute operates autonomously.)

Gradually, many companies that hastily cut budgets reconsidered, and like TharpeRobbins’ client, they reinstated part or all of their previous program spending.

To win them back, vendors continue to introduce new offerings, including programs meant to satisfy cash-strapped clients looking for low-cost rewards. Just Little Something One category that continues to gain in popularity is the instant or “spot” program, which a company can use to reward minor achievements or good deeds with online greeting cards or low-denomination vouchers for gift cards from merchants such as Starbucks or Omaha Steaks.

In August, Baudville, a Grand Rapids, Michigan-based workplace recognition vendor, unveiled an e-card service called ePraise for companies that want to send employees daily reminders of how much they’re appreciated. New York vendor Michael C. Fina launched its spot program—called Spark—at the beginning of the year. Employees can redeem Spark vouchers online at such merchants as 1-800-Flowers, Restaurant.com and Godiva. Vouchers cover any merchandise shipping costs, but don’t show a monetary value—for a reason.

“If employees don’t know how much was spent on the card, they don’t tie their action to a monetary value,” which could be demoralizing if the next time they’re rewarded it’s for less, says Michael C. Fina president Ashley Fina, who is part of a third generation of family members running the business. Like other spot programs, Spark has a Web-based tracking feature companies can use to keep tabs on when an employee redeemed a voucher and for what. They can use the information to optimize the mix of merchandise rewards.

With the bad economy driving consumers to focus on basics, vendors say their clients are adding more essentials to that mix, with such rewards as gift cards for grocery stores or maid service.

Less expensive items also appeal to employers of Gen Y employees, who are impatient when it comes to praise for their achievements, says The Delve Group’s Garratt, who is a board member at Rideau Recognition Solutions. “Younger-generation employees don’t want to wait five years for recognitions; they want something every week in some capacity,” she says.

Though iPods and other personal electronics remain popular across the board, vendors are also stocking different merchandise to appeal to clients’ increasingly multigenerational workforces. TharpeRobbins, for example, created a line of chunky, urban-chic bracelets and pendants for Gen Y workers who wouldn’t wear the tie clip or watch that might appeal to their baby-boomer cube mate.

Tech-Driven Business
No matter how rewards and recognition program providers got their start—74-year-old Michael C. Fina began as a high-end jewelry retailer, and Rideau Recognition Solutions began 97 years ago as a master engraver—today they’re all essentially technology companies. Vendors maintain custom-built software platforms to manage databases of tens or hundreds of thousands of employees and interact with clients’ payroll or HR information systems.

Vendors that have kept up with the technological times by offering Web portals or software-as-a-service tools say it’s their competitive edge over rivals who haven’t been a quick to upgrade. Of Rideau’s 260 employees, almost a quarter work in the company’s IT department, which churns through stats from Boeing and other clients’ payroll databases every day to produce service-award and other reports, according to company president Peter Hart.

The recession hasn’t stopped Fortune 1,000 companies from standardizing rewards and recognition programs, centralizing administration and consolidating the number of vendors they use, all to better manage cost and risk. Lax policies that allowed managers to run rewards programs through expense accounts are done.

“When you’re dealing with Global 500 companies, it’s no longer acceptable for headquarters in the United States to not be sure how rewards are being handled in France,” says Derek Irvine, chief marketing officer at Globoforce, a Dublin, Ireland, vendor with 100 clients and annual revenue of $72.5 million.

To keep up, vendors are expanding the services they offer, in some cases pairing up with international partners to make it easier and cheaper to buy and ship merchandise on a local basis around the world. In July, TharpeRobbins teamed with Accor Services, a Paris-based employee benefits and rewards and recognition provider with operations in 40 countries. “Companies branching out overseas want to have everyone on the same [rewards] platform,” TharpeRobbins’ Luciano says.

OC Tanner bought a British company in 2004 to get into the European market. Michael C. Fina has set up distribution networks in the U.K. and Canada. Globoforce, which started in Ireland 10 years ago, entered the U.S. market in 2003. “In recent years there’s been an explosion in interest in companies taking programs internationally,” Irvine says.

Vendors that can act as a one-stop shop to oversee all of a corporation’s rewards and recognition programs are winning customers. Globoforce won Symantec’s business in 2008 after management at the Internet security software developer realized multiple ad hoc recognition programs being run by various departments all over the world had led to “indulgent” spending, according to Irvine.

Intuit, the Silicon Valley-based personal finance software maker, shifted its employee recognition, years of service, patent awards and wellness awards programs from several vendors to Globoforce in 2004. The move “allowed us to build efficiencies and improved effectiveness” into the programs’ management, says Jim Grenier, Intuit’s vice president of performance, rewards and workplace. Portals for each program are individually branded, but Globoforce’s platform “remains the same in look and feel,” making it easier for employees to use, Grenier says.

With so much at stake, vendor companies and industry analysts aren’t surprised by rumors of possible mergers or acquisitions. In 2007, the 115-year-old Robbins Co. merged with 26-year-old Tharpe Co. to form TharpeRobbins, which has seen its client base and workforce expand as a result, according to company executives. “Smaller players have popped up offering one program within the whole recognition portfolio,” so it’d be a natural for a larger player to snap them up as a defensive or offensive move, The Delve Group’s Garratt says.

In-House Incentives
Not all rewards and recognition industry trends are working in vendors’ favor. Companies whose employee ranks and balance sheets suffered because of the recession are getting creative with incentives that don’t cost anything and don’t need an outsider to manage.

Some of those incentives include instituting flextime hours, letting employees work from home and organizing after-hours sports teams or other bonding opportunities. Incentives can even be as simple as putting more effort into an employee’s orientation and marking their first 30, 60 or 90 days on the job, so they feel like part of the team, says David Sturt, executive vice president at OC Tanner, the $400 million vendor based in Salt Lake City.

In other words: “It’s about a lot more than just giving people stuff,” says Jesuthasan, the Towers Perrin analyst. Forward-thinking companies focus on rewards and recognition practices, not programs, so even if financial hardships mean there’s no money in the till for gifts, employees still get the recognition they deserve for a job well done. It’s an important distinction. The lack of recognition is a top reason employees leave a job, right after insufficient compensation or training, says Saunderson, the Recognition Management Institute consultant.

“How many times have you heard horror stories about gifts being given in a lousy way, or someone’s given name instead of their preferred name going on an award?” he says. “Do that and you lose the recognition value, and that’s what it’s all about.”

With the economy beginning to show signs of recovery, analysts are cautiously optimistic that the outlook for compensation—including rewards and recognition programs—is improving.

Second-quarter earnings outpaced expectations, which bodes well for year-end bonuses, according to Jesuthasan. Depending on the speed of the recovery, he predicts companies could increase 2010 salary budgets by close to 3 percent. Rewards and recognition programs will also continue to grow, “particularly if they can be integrated into how an organization manages performance,” he says.

Workforce Management, September 14, 2009, p. 25-29 -- Subscribe Now!

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