Recognition instinctively seems smart. But how does it impact your business’s bottom line? Here are five factors that make a compelling business case for strategic recognition.

REASONS YOU NEED STRATEGIC RECOGNITION

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22% NO

78% Yes

It’s the most compelling argument there is in business: it benefits the bottom line.

Strategic recognition drives engagement. Engagement leads to improvements to the top and bottom lines. Time and again, studies prove that companies with highly engaged workforces have increased productivity, customer loyalty, sales, and profits. Take for an example Best Buy, which found that for every 10th of a point boost in employee engagement, stores saw a $100,000 increase in operating income.1

A Towers Perrin study has indicated that a 15 percent change in employee engagement can boost a company’s operating margin by more than 17 percent.2 Gallup research has consistently shown a strong connection between employee and customer engagement: two important factors in driving company success.3

So engagement is key. But how do you get it? “Recognition is the number one most impactful driver of engagement,” says Kevin Sheridan, author of Building a Magnetic Culture.4 “When employees feel recognized

in the workplace, they are statistically more likely to be Engaged employees, meaning they will work harder and produce a higher quality result… Even the most hard-nosed supervisors should be able to see the value in providing regular and meaningful Recognition since it is indirectly tied to revenue through Engagement.”5 In fact, Towers Watson has reported that companies where managers were effective in recognizing employee performance saw between 20 percent and 60 percent higher engagement levels.6

Historically, recognition programs have been quite tactical in nature—consisting of managers handing out gift cards from a drawer or Years of Service programs that give tenured employees watches or pins. Strategic recognition takes recognition beyond the tactical and integrates it into your business strategies, with measurable results and the ability to align behaviors with organizational values. With its strong impact on engagement, strategic recognition drives business outcomes in a direct and compelling way.

To assess your own levels of engagement, consider an employee survey. To increase your levels of engagement, ramp up your employee recognition.

Would you work harder if your efforts were better recognized and appreciated?

A glance at recent research from groups like Gallup, Hewitt, and Towers Watson shows that high-engagement workplaces have:

63%

56%

50%

38%

27%

5.75%

3.44%

1 Highly engaged workforces increase shareholder returns.

Source: Globoforce MoodTracker Spring ’12

Difference in shareholder return7

Higher customer loyalty8

Higher sales9

Higher profits11

Difference in operating margins12

Difference in net profit margins13

Above average productivity10

Recommendations

Average Annual Salaries

Company with 10,000 Employees

$41.3MMin bottom line turnover costs

$150K$30K $70K

20%

10%

Annual Loss of Talent (@11% turnover)

770people people people

220 110

Cost to Replace (@75% of salary)

$22.5K $52.5K

EntryLevel

Mid-mgmt

Senior mgmt

70%

$112.5K

$17.3MM

$11.6MM

$12.4MM

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Unwanted turnover is a pervasive and costly liability for any organization. A while back, Coca-Cola estimated that it costs $3,637.00 to replace one minimum wage employee.14 In fact, out of 17 organizations who calculated that cost, SHRM had the lowest estimate, still up at $3,500 per employee.15 The University of Arizona Medical Center conducted an eye-opening study in 2009 setting the cost of replacing a generalist at $115,554; replacing a subspecialist at $286,503; and a surgical subspecialist at $587,125.16

When we factor in time and productivity lost to vacancies and onboarding, we begin to see just how significant these “hidden costs” really are. In fact, the costs of turnover are usually estimated at 30-50 percent of the annual salary of entry-level employees, 150 percent of middle level employees, and up to 400 percent for specialized, high-level employees.17 With U.S. national average turnover at 38 percent, according to the U.S. Dept. of Labor, (and even award-winning employers at turnover rates of 11 percent, according to the APA) that’s a significant bite out of the corporate apple.18

Need an example? Check out the sidebar. You read right. An 11 percent turnover would cost that company $41.3 million a year. Even if all of your employees are the entry-level $8/hr version, you still are incurring losses of $3+ million annually. And this doesn’t even

begin to account for the brain drain and risks associated with losing valuable tribal knowledge and talent.

Research overwhelmingly shows that recognized employees are more likely to stick with you. As the Wall Street Journal recently observed: “Awards, recognition and praise might just be the single most cost-effective way to maintain a happy, productive work force.”19 Recognized and appreciated employees stay the course.

Recognized employees are less likely to jump ship.

We profiled a sample company of 10,000 employees with a very conservative 11% annual turnover rate and an average cost to replace of 75%.

2

of those who feel appreciated

of those who do not feel appreciated

Within Six Months

Within a Month

20%

60%

40%

22%

28,875 19,250,000

770 @ $37,500 per head = $28,875,000

220 @ $87,500 per head = $19,250,000

110 @ $187,500 per head = $208,625,000

CALCULATING TURNOVER COSTS

WHO’S LOOKING FOR A NEW JOB?

JOB DESCRIPTION/CATEGORY

TURNOVER COST as % of

Annual Salary

Entry Level, Non Skilled 30 - 50%

Service/Production Workers 40 - 70%

Skilled Hourly 75 - 100%

Clerical/Administrative 50 - 80%

Professional 75 - 125%

Technical 100 - 150%

Engineers 200 - 300%

Specialists 200 - 400%

Supervisors/Team Leaders 100 - 150%

Middle Managers 125 - 200%

Source: Jack Phillips Center for Research

Determine your own turnover rates and annual turnover costs. Compare that against the investment in a strategic recognition program.

Recommendations

EMOTIONALLY ENGAGED EMPLOYEES

Engagement is good. Lack of engagement is bad. Simple, right? Wrong.

There are two types of engagement. One is transactional (or situational), when employees are happily focused on a job or task they like. The other is emotional, where employees have made strong ties to their bosses, coworkers and company values. Like cholesterol, you have to make sure you have less of the first type of “bad” engagement and more of the second type of “good” engagement. Strategic recognition drives that.

John Fleming of Gallup, author of Human Sigma, has linked emotional engagement to satisfaction and to desirable financial and

operational outcomes.20 According to a recent study published by the Chartered Institute of Personnel and Development (CIPD) and Kingston University Business

School’s Centre for Research in Employment, Skills and Society (CRESS), high levels of the transactional form of engagement were found to:

• Be potentially damaging for both individuals and their organizations

• Reflect higher levels of stress and difficulties in achieving a work-life balance

Emotional engagement has the opposite effect. “It’s driven by a desire on the part of employees to do more for the organization than is normally expected,” the study said, “and in return they receive more in terms of a greater and more fulfilling psychological contract.”21 That means emotionally engaged employees are bringing employee energy to the table in a sustainable, positive way.

How does this relate to recognition? Most traditional reward programs are unemotional and transactional—with incentive bonuses or cash rewards, isolated top-down award-giving, or simple milestone catalog gifts. Strategic recognition, on the other hand, is social and emotional—with public appreciation and awards that are tied to corporate values, witnessed and congratulated by peers and that involve personal choice in reward type. Good recognition drives good engagement.

Not all engagement is good engagement.3

TRANSACTIONALLY ENGAGED EMPLOYEES

More likely to display undesirable behavior.

More likely to react negatively to the line manager relationship

Score lower on all performance dimensions

Do only what is required or expected, as long as promised rewards are forthcoming

Less likely to respond to a supportive environment

Not committed to the job or the organization

Willing to jump ship if a better offer appears.

Attached to their work. More likely to have high levels of well-being

Less likely to experience burnout or work–family conflict.

Less likely to indulge in undesirable behavior which might damage the organization.

Desire to do more for & get more in return from their company.

More likely to have high task performance & levels of citizenship

Willing to stay the course.

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Examine your culture to determine the type of engagement you’re inspiring. Consider strategic recognition that encourages emotional, rather than transactional engagement.

Recommendations

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Data Deficient Organizations

Crowdsourcing improves talent management and metrics.4

You’ve just hired a key new employee. Great! But once the on boarding process is complete, the process of talent management is just beginning. If you do it well, you have a motivated, engaged employee who contributes to the bottom

line of the organization. If you phone it in (or screw it up), you’ll be conducting another exit interview. Not so great.

Talent management cannot be ignored. Successful companies don’t just hire an employee and forget him/her except for a half-hearted annual review. According to SHRM, in leading companies, talent management is “a primary driver for organizational success,” and, indeed, 76 percent of companies already consider talent management a top priority.22 A Deloitte study

showed that the most profitable companies are ones who align people practices to business strategy and establish a clear succession plan across your workforce.23

The two simple keys to effective talent management are as follows:

1. Identify, develop and grow talent

2. Recognize and reward positive behavior

Employees who are cultivated and appreciated are employees who become more satisfied, more effective and apply more employee energy to your business.

But sadly, good talent management has long been considered a “soft” skill, because human assets are so intangible and difficult to measure. Performance reviews are fatally flawed, succession planning is haphazard and subjective, and appreciation inconsistent and undervalued.24 According to WorldatWork, only 17 percent of organizations even know all of their top-performing employees or are looking to develop them for future roles.25 Yet for all that, the Brookings Institution notes that 85 percent of a company’s market value is now calculated on just such intangible assets: knowledge, reputation and human talent. It is critical to be able to identify your positive outliers and cultivate them.

There is also a real link between how well we gather and use our talent intelligence, and financial performance. According to a recent survey by HCI/Taleo: “Organizations that rated themselves ‘proficient’ in workforce data analysis were far more likely […] to financially outperform those who rated themselves as ‘deficient’ at workforce data analysis.”26

Strategic recognition provides the data required to gain deep insights into your culture, and not only measure results but manage them. Tools like Executive Insight and Talent Maps™ quantify a previously very soft set of variables. They let you dive deep into how your organization works, visualizing the ties among employees and workgroups, and identify key performers and influencers for the purposes of performance management, succession planning and retention. They also provide you with an effective tool for cultivating, engaging, appreciating and measuring your talent.

TRADITIONAL, TACTICAL RECOGNITION

STRATEGIC, SOCIAL RECOGNITION

STOCK VALUE % CHANGE

LAST 12 MONTHS

Global programs with complete tracking and reporting

Peer-to-peer recognition

Driven by culture and values

Spontaneous recognition in response to behavior

Broad, inclusive circle of winners

Meaningful rewards chosen by employees

Myriad, decentralized programs with no centralized reporting

Recognition on a schedule (e.g. “Years of Service” programs)

Unilateral, top-down recognition Limited, elite circle of winners

“Trash & Trinket” awardsCulture and talent

data not made available

+4.6%

-3.0%

Data ProficientOrganizations

Evaluate the efficiency and accuracy of your current performance management systems. Implement a recognition program and use the resulting recognition data to analyze how employees and departments interact, where talent outliers are, and how employees engage with culture and values.

RecommendationsHCI/Taleo

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High-performing companies align people management practices to corporate culture, business strategy and long-term objectives.27 Research from Deloitte has shown that managers of higher profitability

companies were 12 percent more likely to have a strong focus on core values and corporate culture.”28

Best-selling business writer Jim Collins has found that having core values is essential to enduring business greatness: “The point is not what core values you have,” he wrote, “but that you have core values at all, that you know what they are, that you build them explicitly into the organization, and that you preserve them over time.” In their book, Built to Last, Collins and Jerry Porras found that “Companies with strong positive core vision and core values have outperformed the general stock market by a factor of 12 since 1925.” 29

Likewise, in a recent study, the research firm Modern Survey found that “having clear values known and understood by

employees throughout [an] organization is key to making engagement possible. Without clear values, it is nearly impossible to engage employees.” In other words, company values are not just an exercise for executives. Good, clear, practicable values are an intrinsic pillar of engagement and organizational success.

Because strategic recognition is aligned directly to company values, with awards and recognition models that map back specifically to each value, it brings those guiding ideals down off the wall and integrates them into employees’ everyday thoughts and actions. In this way, strategic recognition brings culture alive in employees’ minds as a practice, rather than as an abstract concept. Company values should be lived, not just displayed.

Company values are not something employees recite, but something they practice.

5

Companies with strong positive core vision

and core values have outperformed the

general stock market by a factor of

12 since 1925. -Jim Collins, Built to Last

The takeaway?Any of these five factors makes a compelling business case for strategic recognition. Together, they offer an exponential return on investment that directly impacts the bottom line of your business.

Determine if you have aligned company values with corporate culture in way that resonates with employees. Make those company values directly actionable.

Recommendations

Employees who know

and understand their

company values are 26x

more likely to be fully engaged.

-MODERN SURVEY

1CFO Magazine, 2007 & Harvard Business Review, 2010 2http://www.ketchumperspectives.com/ar-chives/2004_i2/internal/culture.php 3Gallup, “Engaged Employees Inspire Company Innovation”, Gallup Business Journal, http://busi-nessjournal.gallup.com/content/24880/gallup-study-engaged-employees-inspire-company.aspx 4Interview, Kevin Sheridan, May 23, 2011 5Kevin Sheridan, Building a Magnetic Culture, 2012 6Towers Perrin, “Turbocharging Employee Engagement”, 2009 http://www.towerswatson.com/assets/pdf/629/Manager-Recognition_Part1_WP_12-24-09.pdf 7Hewitt Associates, “Hewitt analysis shows steady decline in global employee engagement levels”, press release, July 29, 2010

8Gallup, “Q12 Meta Analysis”, 2006 http://strengths.gallup.com/private/Resources/Q12Meta-Analysis_Flyer_GEN_08%2008_BP.pdf9Gallup, “Q12 Meta Analysis”10Towers Perrin, “Turbocharging Employee Engagement” 11Towers Perrin, “Turbocharging Employee Engagement”12Gallup, “Q12 Meta Analysis” 13Gallup, “Q12 Meta Analysis” 14“New Ideas for Retaining Store-Level Employees,” Coca-Cola Retailing Research Council, January 2000 15Source: SHRM. See: Marlene Chism, Stop Workplace Drama: Train Your Team to Have No Complaints, No Excuses, and No Regrets 16Schloss EP, Flanagan DM, Culler CL, Wright AL, “Some hidden costs of faculty turnover in clinical

departments in one academic medical center” 2009 http://www.ncbi.nlm.nih.gov/pubmed/19116474 17Source: Jack Phillips Center for Research. See: http://humancapitalstrategy.blogspot.com/2009/04/calculating-employee-turnover-cost.html 18http://www.apa.org/news/press/releases/2011/03/workers-stressed.aspx 19http://guides.wsj.com/management/recruiting- hiring-and-firing/how-to-reduce-employee-turnover/ 20http://businessjournal.gallup.com/content/102496/where-employee-engagement-happens.aspx21CIPD, ”Emotional or transactional engagement – does it matter?,” 2012 22http://www.shrm.org/Research/Articles/Articles/Documents/0606RQuartpdf.pdf 23https://www.deloitte.com/view/en_US/us/Insights/Browse-by-Content-Type/deloitte-review/2472dacb2bea9210VgnVCM100000ba42f00aRCRD.htm 24Recognition Council 2009, “The Time for Employee Recognition and Rewards Programs Is Now” 25World at Work, “Global Survey Reveals Companies Still Fail to Communicate Strategy, Nurture Top Performers, or Accurately Align Pay for Perfor-mance,” 2011 26http://www.taleo.com/researchpaper/business-impact-talent-intelligence 27“Global Talent Management: How Leading Multinationals Build and Sustain their Talent Pipeline,” INSEAD Working Paper, 2007. 28https://www.deloitte.com/view/en_US/us/Insights/Browse-by-Content-Type/deloitte-review/2472dacb2bea9210VgnVCM100000ba42f00aRCRD.htm 29Collins, Jim, Built to Last: Successful Habits of Visionary Companies, 2004

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Globoforce has been helping companies drive business results through strategic recognition programs since 1999. Our clients get results—dramatic improvements in employee engagement, increased employee retention and measurable adoption of corporate values.

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Founded in 1999, Globoforce is the world’s leading provider of employee recognition solutions.

Through its social, mobile, and global technology, Globoforce helps HR and business leaders

elevate employee engagement, increase employee retention, manage company culture, and discover

actionable insight about their talent. Today, employees across the world are living their company values

and achieving peak performance through the SaaS-based Globoforce platform. A private corporation,

Globoforce is co-headquartered in Southborough, Massachusetts, and Dublin, Ireland.

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