EMPLOYEE RECOGNITION appears to be shedding its “soft” image as new research proves its bottom-line benefits and more companies start their own programs.
In a study recently released by O.C. Tanner Co., Salt Lake City, 26,000 employees at all levels in 31 companies in the healthcare industry were asked to rate their level of agreement with the statement: “My organization recognizes excellence.” The responses, by organization, were grouped into quartiles and compared to the following profitability measures: return on equity, return on assets, and operating margin. In even the lowest quartile, there was a 2.4 percent return on equity, and in the top quartile there was an 8.7 percent return. In other words, say the study's organizers, companies that practice recognition enjoy a return that is more than triple of companies that do not.
“The reason this research is so important is that for the first time there is real, concrete evidence that recognition does indeed impact the bottom line,” says Chester Elton, vice president of performance recognition, O.C. Tanner, and co-author of the Carrot business book series. “It's important to consider the statement people were asked to rate — My company recognizes me for excellence — because that word is how great companies separate themselves. They create a culture of performance and excellence, and when it is demonstrated, it is rewarded.”
Although there are no statistics on the use of recognition by Fortune 1000 companies, a recent study by the National Association of Employee Recognition found that 89 percent of companies use recognition programs as part of their human resources strategy. Of those companies, 95 percent feel that it links directly to their overall goals as an organization.
Elton points to Southwest Airlines (the world's most profitable airline), Avis Rent A Car System Inc. (named JD Power and Associates No. 1 rental car company three years in a row for the business traveler), and Marriott Hotels, companies that can be held up as models for their recognition strategies. Even Jack Welch, former CEO of General Electric, in his latest book, Winning, lists “celebration” as his eighth principle of leadership, says Elton.
“It's not a warm and fuzzy topic anymore — it's a key element in becoming a great leader.”