In today's fast-paced and often turbulent business environment, having a high-performance, engaged workforce is critical to a company's bottom-line profitability because it drives higher quality, customer satisfaction and revenue growth.
Study after study by human resource, sales and marketing experts shows that the benefits of engaged employees to corporate performance and to the bottom line are so pervasive that it's almost impossible to deny the business imperative of actively incorporating engagement initiatives, such as incentives (both cash and non-cash), into corporate operating plans.
For example, one research study by The Gallup Organization found that engaged workgroups are:
18 percent more productive.
16 percent more profitable.
Generating 18 percent higher earnings.
37 percent less prone to absenteeism.
12 percent better at engaging customers.
Creating 2.6 times higher growth rates.
Reducing quality defects by 60 percent.
51 percent less likely to be a source of employee theft.
62 percent less likely to be involved in on-the-job accidents.
51 percent less likely to leave (in low-turnover companies), and 31 percent less likely to leave (in high-turnover companies).
"No doubt about it, engaging employees and customers is a very smart investment that returns significant return on investment," said Michelle Smith, former vice president, Business Development, O. C. Tanner, an international business consulting and marketing group.
While these statistics make a compelling financial case for engagement, Smith said, an important—and often overlooked—additional benefit to corporate performance is that these issues (absenteeism, quality control, turnover, etc.) occupy the vast majority of managers' time.
"By reducing the incidences of these problems," she added, "organizations gain an additional performance lift by freeing managers to focus on high-gain initiatives, rather than spending so much time trying to solve these day-to-day problems. This is an example of one of the many 'cascading' corporate benefits of engaging your workforce."
“Interestingly,” Smith continued, "companies that invest in engaging both employees and customers can achieve as much as a 240 percent advantage over competitors, demonstrating that results are increased exponentially when engagement strategies are integrated and address a broader audience."
Engaged customers represent a 23 percent premium in terms of profitability, revenue and relationship growth. Such loyal customers deliver significantly enhanced value by buying more products, their willingness to spend more for products, returning to shop more often, and having longer shopping experiences.
Smart leaders have enthusiastically embraced engagement initiatives that target their workforce and other stakeholders to gain the advantages that a hyper-competitive marketplace requires.
They have to in order to survive.
Progressive leaders entered the downturn with a workforce fired up and committed to leveraging the available resources to turn things around as quickly as possible.
And now it's paying off. Not only are companies with engaged workforces producing results, but also they'll be perfectly positioned to leap forward in a redefined, healthier economy, unlike their competitors who may be waiting to engage their staff until the economy totally recovers. These organizations will likely find themselves falling further behind the curve.
"A leaders' goals," Smith said, "should be to improve engagement scores within their organization as much as possible, and the good news is that the goal is well within their own power. A little appreciation, guidance and feedback from them go a long way in keeping employees engaged and on the job."
Identifying the High Performer
So, who are these engaged employees?
"He or she is most likely to be among your top performers," observed Mike Ryan, senior vice president, marketing and client strategy, of the Madison Performance Group, based in New York City. "But, I think if you look at why engagement is critical today, there are some issues that really resonate with business leaders. One is that an engaged employee is more likely to adopt the level of change, the philosophy of change needed by some organizations to grow in a competitive marketplace."
In other words, Ryan said, an engaged employee is more likely to "roll with the punches. And not only adapt to change but innovate along the way."
Ryan agrees with Smith "that an engaged employee is more likely to impact the corporation and the customer experience, so when you look at engagement impacting customer performance, the idea of innovating, adapting to change and enhancing the customer relationship are things that business executives are really focused on today."
A company's success is a function of its people, added Jennifer Rosenzweig, of the Forum for People Performance Management and Measurement, based at Northwestern University, Evanston, Ill. "So the more highly engaged the person, the more connected and committed they are to their work, more connected to their organization, the more productive they will likely be."
Rosenzweig believes engagement is strategic, as well as tactical.
"You need to have a distinct point of view of your employed strategy," she said. And that means the kind of relationship you want to build with your employees in your organization, how you want to lead them, what kind of culture you want to create, the values you have, and how you design a mission and vision.
All these factors reflect what you are as an organization, which in turn attracts certain kinds of people to your workforce.
"That's just some examples of strategy," Rosenzweig said. "With that as a backdrop, you can start to define tactics to create an environment that promotes engagement."
Engaging the CFO: ROI Matters
"If I were going to have a cup of coffee with a Chief Financial Officer," Mike Ryan said, "I would talk about how return on investments should be inspected from a lot of levels. There is the issue of running incentive programs effectively, and then there is the issue of incremental financial gains associated with improved customer satisfaction, improved productivity and really all aspects of running the business."
But if you were to have a conversation that truly resonates with a CFO, he added, it comes down to market valuation.
Over the years intangible assets drive an increasing part of an organization's market value. When it comes to valuation, Ryan explained, "What's important is an organization's ability to continue to be an ongoing concern. Will it still have market demand? Will it still have access to resources? And increasingly, the access to resources is people. If an organization has a type of human capital strategy in place that drives a higher level of intellectual capital, drives a higher level of innovation, then the organization will likely be valued higher."
Michelle Smith would have even another approach to a CFO.
"My favorite engagement data point that resonates well with CFOs is from the O.C. Tanner Global Recognition Study done by Towers Watson," she said. "It found that over a three-year period, companies with engaged employees grew their operating income by 19 percent. Over that same period, organizations without engaged employees experienced an operating income decline of 30 percent. The almost 50 percent growth variance is something few CFOs or CEOs can afford to ignore."
Smith also noted that a 15 percent improvement in employee engagement equates to a 2 percent improvement in an organization's operating margin, another powerful data point for CFOs.
Other research has proven that companies that recognize and incent their employees, partners or customers outperform their competitors by at least 30 percent to 40 percent in revenue growth, net income and stock performance—indicators that most CFOs monitor regularly.
"Moreover," Smith added, "the employees engaged and influenced with incentive programs are busy spending their day influencing other vital corporate assets—customers! The link between customer satisfaction and loyalty, and employee satisfaction and loyalty has been firmly established; the link between profitability and loyal customers are the result of engaged employees. Putting incentive programs to work is far more than a good idea—it's a profitable plan worthy of any CFO's attention."
In an increasingly competitive market, incentive and recognition programs designed to improve engagement can no longer be viewed as a discretionary expense, but as a vital and strategic tool to ensure corporate growth and survival. CFOs should appreciate the quantifiable data and lead the effort to improve engagement in their organizations.
Another factor that may help convince CFOs of the value of engagement is that most investments in motivation or incentive programs pay for themselves from the increased revenues and/or cost savings they generate.
"The facts," Smith said, "are clear and quite compelling that motivation and incentives are important and proven business tools we should all be using, and the benefits of more engaged and skilled workers continue long after the program ends. The effectiveness of motivation and incentive programs as cost-efficient vehicles for improving employee engagement, aligning the workforce behind corporate priorities, and increasing productivity is well-documented."
While these programs are a positive experience for employees, it's the employer who gains the most from them in the increased revenues and cost savings they can generate, and finding these opportunities is the role of the CFO as steward of the company's finances.
"Corporations worldwide are scrambling to find effective ways to not only attract and keep the best talent," Smith said, "but also to elevate their performance, productivity and service levels to new heights. Embodied in this quest is the ability to align individual behaviors with strategic corporate objectives. And, importantly, to motivate and reward those who meet or exceed those objectives."
In today's economy, organizations must achieve maximum return on investment in their people to boost corporate performance and gain competitive advantage. It's what distinguishes and differentiates top-performing companies from those that won't be around next year, and every CFO is concerned about that.
"So if you're sitting down with a CFO," said Rosenzweig, "start with the argument that engagement equals productivity, which equals bottom-line impact. The more you engage employees, the more they tend to stay with the company, and the less turnover you have, the less cost. So incentive programs motivate people to reach significant goals, and meet the payoff. But, by their presence, they encourage more people to be more fully engaged in their work, so there is a ripple effect with incentive programs."
Incentive programs are one of the most cost-effective and powerful tools to help achieve your business goals, but the fundamentals can't be short-changed or put on autopilot if you expect to be successful, Smith said.
Organizations need an understanding of the basics before creating or designing an effective incentive program. Start by understanding the audience you are trying to reach.
"Whether it's salespeople or service personnel," Rosenzweig said, "understand what they are about and their role in the organization. Also, set clear and specific goals, so it is clear what outcome you expect. Don't be afraid to have multiple goals. Have the award in line with the difficulty of the challenge, and allow for some customization."
Rosenzweig emphasized the latter point. "The incentive program you design should not just be a one-size-fits-all," she said. "It should allow people to uniquely feel motivated and appreciated."
One thing organizations overlook is the role of the manager.
"I believe there are two fault lines in an organization that incentive programs need to attend to, otherwise they are going to be dead in the water," Ryan explained.
One is the mixed message that is coming from the C-suite and the role of the front-line manager in really driving the level of engagement.
"Organizations right now are sending out messages that say we need to cut costs," he said. "But in doing so they are also communicating to front-line managers mixed messages that say don't spend needlessly. It's important that organizations position recognition activities, either funded or non-funded, as a big part of driving the business."
Organizations take their cue from the top. It's important for leaders to communicate to managers that not only do they have the authority to recognize but also they have the responsibility to recognize. And once organizations do that, they need to let managers have a wide berth as to how they use recognition.
"There is a correlation," Ryan said, between a manager's frequent interaction and an employee's attitude about the job. "Employees are more likely to be engaged when they feel that a manager not only understands what they do but also encourages them to use their skills as much as possible. In other words, the aspect of encouraging and recognizing an employee at the managerial level is really critical in driving enterprise engagement."
After all, a manager is going to know where an employee's deficiencies are. So a manager can use that aspect of intervention to drive that particular employee's skill set. It's also important to look at a manager's style, Ryan noted.
There are three common styles of managing: the transactional manager, who manages to metrics. He says, "Let's get 20 of these things done today." Then there is a manager who manages to a relationship. She is more charismatic in her approach. And then there is the transformational manager—one who recognizes a responsibility to bring out the best of the employee, because that is the way that the manager is going to be able to reach his or her goals right then and there on the front line and develop leaders of the organization moving forward.
Managerial focus should not just be on metrics—quarter-to-quarter results—but on the long-term goals such as developing human assets.
The Effectiveness of Non-Cash Rewards
Cash is a major motivator for salespeople (and the human desire to acquire things). But handing out a cash reward doesn't appeal to the emotional aspects of what people want from their compensation: the need to bond and the need to learn.
In a tough economy people need to feel like a productive member of a team. Salespeople get that not only from the affirmation when closing a sale with their customer, but also from their employers when they are told they've done a good job.
Research indicates that incentive program outcomes will be substantially improved when non-cash awards are used instead of cash, Smith said.
"People may say that they prefer a cash award," she noted, "but cash doesn't change their behavior significantly, nor is it remembered as an award. If you want to get maximum results from your program, stick with non-cash awards."
Here are some reasons why it may be a smarter strategy for your company:
Cash awards have no "trophy value." Cash is usually deposited into the bank and used to pay bills. In fact, most people don't recall how they spent cash after just 10 days! Contrast that with a non-cash award that brings back the memory of why it was earned and the good feelings of being awarded every time the person sees it. You want that long-term impact benefit from your awards.
Cash frequently becomes an entitlement or is considered compensation by employees. When that happens, the opportunity for it to motivate is diminished and you will face the additional problem of appearing to reduce pay if you ever eliminate the award. Non-cash awards don't pose these risks and are a safer alternative.
Social protocol dictates that it's impolite to brag about cash awards or bonuses, making it a less-than-ideal award choice. You want your program participants to share their excitement about receiving awards with their colleagues and friends. This is especially important in team or peer-to-peer programs, so non-cash awards would be more effective when working to build teamwork, too.
Most non-cash awards can generate significant savings over cash because the perceived value of non-cash awards can be as much as 30 percent higher than what you would actually pay for that award. Motivation and incentive professionals work hard to design award catalogs that include awards with high perceived value so that you can get maximum impact from your award investment, or spend less without compromising the quality of your program.
Another "soft" benefit in today's stressful environment is creating resilience. People have been hit hard with bad news and are faced with challenging problems. There has to be something to counter that. An employee needs to be able to say "OK, we've had a lot of bad days, but today is a good day. I accomplished something worthwhile today, and I know it through recognition or incentives." Recognition can build up a reservoir of good will that allows people to push through the bad news and continue to strive for reaching goals and ever increasing challenges.
Dealing With the Disengaged
It's a big deal when your highest potential people are not engaged.
"The most alarming facts about engagement pack a double bad-news punch," Smith said. "Only 10 percent of employees are currently engaged (62 percent are apathetic; 28 percent are actively disengaged), and engagement scores have plummeted farthest among high performers, who are now 2.7 times more unhappy than other employees."
The business world's rising stars are increasingly disengaged and actively seeking new employment opportunities.
Smith suspects that high performers are feeling the majority of the business impact of the last two years. These star performers have always been the employees leaders could count on, and have likely gone to with additional projects and assignments as layoffs happened and everyone was expected to do more with less.
But unless they are well rewarded and acknowledged for their extra contribution, their enhanced discontent is understandable. These employees may be waiting for the economy to heat up so that they can move on to new opportunities that they know are out there for them.
"I often think of disengagement as a form of sabotage," Rosenzweig said. "A disengaged employee is often not just passive, but actively thwarting the efforts of the organization. It may not be deliberately malicious, such as people who spend an inordinate amount of time complaining about a situation, but it also plants seeds of discontent, fanning flames. So layer upon layer of problems can stack up in disengagement, and instead of being creative in solving problems and moving forward, the organization can slip back."
While the news is discouraging, employers can do something to prevent their best and brightest from defecting.
Recognizing that you need to do something is the first step, Smith explained.
Be mindful that this isn't a one-time fix—it's more important than ever now to keep the lines of communication open between leaders and staff. As a leader, the key is to strengthen and rebuild trust with your team, and that happens when you're available, when you listen to them, and are open and honest about what's happening in the organization.
Taking the time to share news and ideas with staff will do wonders in reducing any anxiety that may be present. Help the team understand why you've had to make some of the decisions that may have adversely affected them and your candor will go a long way in keeping them engaged. If you do have some folks who've become disenchanted, talking it through is the quickest way to rebuild connections and trust.
Increase your use of incentives and motivation, Smith said. "These cost-efficient programs are effective vehicles for delineating what's important to the company and rewarding those who are achieving their goals. By recognizing this publicly, you strengthen your bond with that employee and reinforce desired behavior for the entire team."
What Can Go Wrong?
The most common performance program design mistake is not creating the program around specific, measurable goals and activities. Criteria should be firmly established at the onset of the program and clearly communicated to the program participants, with an equally clear message of specifically what they can do to contribute to the achievement of those goals, along with how and what they will be awarded for meeting and exceeding those goals.
Another mistake is not putting a process in place to track and measure results.
Not giving employees timely feedback is also a problem. Some programs begin with a big splash, but then no one ever hears anything.
Feedback needs to be very specific to the person. In other words, how am I doing? If I can't see my own contribution and connection it makes it harder for me to gauge my progress.
Make sure that people have all the resources that they need.
In many organizations, certain departments are in the spotlight more than others, despite the fact that others' individual contributions are every bit as important to the overall goals of the organization. Don't make that mistake.
Don't change goals midstream. If people know they have to achieve X and along the way management changes their mind and now you have to do Y it can be demoralizing. Don't create moving targets.
Setting up an incentive program, Smith explained, requires forethought and good design. It's not just about sales commissions or gold watches; nor is it a simple feel-good intervention. It's about defining broader business goals, drawing up strategies to get there and aligning them with each individual in your organization. It's only through focusing and harnessing employee efforts that the company can hope to excel and achieve their goals.
Feeling appreciated and being recognized for one's work continually ranks at the top of why people remain loyal to their employer, and those motivated employees afford their employers tremendous advantages in the marketplace.
As workplaces continue to change in this new economy, employees are being asked to adapt, learn, re-adapt and relearn in order to ensure that companies themselves retain a competitive edge. Recognizing and appreciating these employees is very important to corporate survival. Incentive and recognition programs are a proven, strategic opportunity to do just that.
Rick Dandes is a reporter/feature writer at The Daily Item in Williamsport, Pennsylvania. This story originally appeared in Premium Incentive Products magazine.
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