Sunday, June 10, 2012

The Other 3 R's: Recognition, Remuneration and Retention

A former colleague of mine was telling me about the new company she had just joined. She was baffled by the fact that employees would get their full bonus even if they only hit 95% of their revenue targets. Additionally, she could not reconcile how employees would receive considerable monetary recognition for non achievement. In her mind the bonus paid was recognition by the company for an employee achieving a set of metrics and not simply a form of salary paid for coming to work and not meeting budget.

To be blunt I was not any help in the conversation, as I did not have the facts. Was the 95% a set metric? Did 95% represent above industry average year on year growth? Without these facts it was difficult to provide meaningful input however the conversation did prompt me to think about how employees are recognised in the work place environment. In turn this also prompted me to consider the relationship between Recognition and Retention.

Research shows that Praise and Recognition are crucial for increasing employee productivity and engagement. An often cited study is the 2003 Gallup Employee engagement, satisfaction, and business-unit-level outcomes: a meta-analysis by Harter, J.K., Schmidt, F.L., & Killham, E.A. The study found that individuals who receive regular recognition and praise:
  • Increase their individual productivity
  • Increase engagement among their colleagues
  • Are more likely to stay with their organization
  • Receive higher loyalty and satisfaction scores from customers
  • Have better safety records and fewer accidents on the job
  • Lower negative effects such as absenteeism and stress.
It should be noted that the research included "more than 10,000 business units and more than 30 industries".

But what about money? Isn't a salary a key driver of retention? Well according to a number of surveys over various time periods the answer is no.

In 2000 executive search firm BridgeGate LLC conducted a study of 660 American workers. The study included looking at what would persuade the workers to stay with their current employer. BridgeGate found that although a raise was the most common response (43.2%), non-monetary issues were cited by more workers as motivators (50.5%). The non-monetary motivators included:
  • improved benefits programs (23.1%)
  • flexible work schedules (14.1%)
  • stock options (8.6%)
  • better training (4.7%)
A 2009 study by Robert Half International asked the executives, “Which of the following is most likely to cause good employees to quit their jobs?”
  • 35%  replied unhappiness with management
  • 33%  replied limited opportunities for advancement
  • 13%  replied lack of recognition
  • 13%  replied inadequate salary and benefits
  • 1%  replied bored with their job
  • 5%  replied other/don’t know
Finally, a study of 1,000 executives by The Adele Lynn Leadership Group found that 51% of employees interviewed said that they would work for slightly less money if other conditions were present. The top four reasons cited for leaving an organization included:
  1. organizational practices that weaken morale
  2. poor fit between skills and culture
  3. no concern for growth and development 
  4. inadequate training.
Whilst the findings of the various studies are noteworthy, I find it difficult to reconcile how salary seems lower on the importance scale for so many people, when I know that through the hundreds of interviews I have done with various job applicants two key reasons for not taking the job have been:
  1. "The job is not paying enough."
  2. "I received a counter offer from my current employer and have decided to stay."
The answer lies somewhere in between and is well articulated in the book The Enthusiastic Employee: How Companies Profit by Giving Workers What They Want by David Sirota, Louis A. Mischkind, and Michael Irwin Meltzer (2005) who suggest through their "Three Factor Theory of Human Motivation in the Workplace" that there are three basic goals of people at work, namely
  1. Equity: (To be treated fairly). In an article for Knowledge @ Wharton, Sirota states " Employees want to know they are getting fair pay, which is normally defined as competitive pay. They want benefits and job security. These days, employees especially need medical benefits, so those have become significant. On the non-financial side, employees want to be treated respectfully, not as children or criminals. Equity is basic. Unless you satisfy those needs, not much else you do is going to help. If I feel underpaid and if I feel that the company is nickeling and diming me, or wants to pay as little as possible, there is not much else an organization can do to boost my morale. This runs contrary to what a lot of people in my field say -- that pay is not that relevant. Baloney. It's terribly, terribly important."
  2.  Achievement: Employees need to take pride in their accomplishments by doing things that matter and doing them well. They need to receive recognition for their accomplishments and take pride in the organization's accomplishments. (Note: This is supported by the Gallop research above.)
  3. Camaraderie: "The quality of social relationships in the workplace - its `social capital' - ... are critical for effective performance and, therefore, for a sense of achievement in one's work."
So back to my former colleague. Was she right to be upset? Who knows! Maybe the company had a poor incentivisation scheme, maybe it didn't. What I do know is that if you want to keep (Retain) great people, money is important in that it is crucial for an employee to feel as though they are paid fairly. However equally important are non-monetary factors such as Recognition that actually lead to monetary improvement for organisations. Like so many aspects of the corporate world this is a balancing act. However, as the data suggests if an organisation gets the balance wrong employees won't hang around to see if the company will right itself.

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