Incentives When Employees Are Recognized

Incentives

When employees are recognized and appreciated they will be personally motivated and the company will be rewarded, as well. If developed and administered correctly, motivational programs can increase loyalty because of the employees' greater involvement in the company's future, as well as enhance communication between employees and management. In past decades, management thought of recognition as a nice gesture to make, not as a necessity. The motivational programs were not given much thought and did not fit into the overall strategy of the company. Now, organizations consider these programs more strategically and make sure that their employee incentive and reward programs align with their overall mission and business objectives. Controversy exists over the type of motivation to use. Some say that incentives such as cash bonuses are not effective, since they only result in short-term increased motivation. However, there are many organizations that see these monetary reward programs as productive in certain cases. As noted in this paper, the type of motivational program used will depend on the company's strategy. Every form of employee motivational program can be an advantage or disadvantage depending on how it integrates with the company's strategic plan. Today, many organizations are regarding performance motivation as a continuous, future-oriented and participative process (Shields, 2007). As Albrecht (Holman, Devane, & Cady, 2007) states: The way that employees are motivated for improved performance should not be considered in a vacuum It has to fit into the overall strategy of the company as part of its mission and culture. To achieve desired goals, reward systems should be closely aligned to organizational strategies (Allen & Helms, 2002).

Murlis (Shields, 2007, pg. 63) states that "reward strategy will be characterized by diversity and conditioned both by the legacy of the past and the realities of the future." All reward strategies vary, just as all organizations do. Similar types of reward will be covered in the strategies of different companies, but they will be handled differently in relation to variations in their contexts, business strategies and cultures. Reward strategy is not a clear-cut process. It evolves, changes and at times has to be reactive rather than proactive.

Definition

Reward programs are a means by which management can encourage the employees' contributions toward the company's success by influencing individual or group behavior. These incentives include cash, recognition, time off, stock ownership, special assignments, promotions, training and education, social activities and prizes. A distinction is normally made between incentives and recognition. A reward for performance improvement it not recognition, but an incentive program created to increase a company's bottom line. Employee recognition, on the other hand, is the respect and appreciation offered directly to an employee a contribution to a job well done. In this case, there is not a reward for a specific increase or improvement. It is usually for the way a person performs over time. Recognition consultant Nelson (2004) reports that employees most appreciate the form of recognition where their company shows its appreciation for the work they have accomplished. Nelson (2004) relates one study where 78% of employees said it was very or extremely important that their manager recognize them when they perform well.

Incentives vs. Recognition

Whether employees should be rewarded or recognized for their contribution has long been debated. As reported by Milne (2001), some people argue that when employers offer rewards for performance, it weakens productivity and performance, because employees start performing the task for external reward rather than for personal reasons. Thus, perceptions of self-determination may decrease and motivation and quality of performance decrease. In recent years, this belief has become more prevalent. On the other hand, a study of over a quarter of a century of studies regarding performance suggests that incentives can be effectively used to enhance interest and work results (Milne, 2001). Cameron and Pierce (2002) found that employees normally appreciate activities or tasks more when they receive incentives. These authors conclude that the argument that incentives reduce performance and interest is not true in all cases, and each situation should be considered on its own in relationship to the company's overall goals and strategies.

Cameron and Pierce (2002) also studied what, if any, were the different effects of varied recognition programs. They concluded that recognition or praising people for their work results in more interest in performance, and incentives or monetary programs can enhance motivation as well when they are given to people for finishing their work or for achieving or exceeding particular performance standards. Cameron and Pierce concluded that incentives increase performance and interest when they are: 1) contingent on quality or performance or are received for accomplishing clearly stated performance standards; 2) based on challenging activities provided for learning each aspect of a complex skill and 3) given to employees for optimal effort and activity.

According to Cameron and Pierce (2002) incentives cannot be painted as good or bad for motivational programs. When incentives do have negative effects, the circumstances can be prevented. In the workplace, the organized establishment of an incentive system can improve the employees' interest and performance when these incentives are directly related to the completion of performance expectations and the personal attainment of challenging responsibilities. When incentives are connected to specific performance standards, employees show greater contentment and productivity.

The top-ranking method for recognition is honest commendation offered in a timely manner with demonstrated examples. Studies by Allen and Helms' (2002) support the significance of the managers' continuing comments of appreciation in encouraging employees to work toward the attainment of strategic goals, regardless of the strategy that the company has put into effect. Positive recognition from managers and peers motivates employees to higher levels of job performance. Developing creative ways of offering personalized non-monetary rewards strengthens positive behaviors and enhances employee performance and retention. Such forms of recognition can be inexpensive to give, but invaluable to receive (Stein, & Zuidema, 2005)

Rewards and Strategy

Regardless of whether a company decides on rewards or recognition, the choice has to be in line with the organizational strategy (Allen & Helms, 2002). For instance, an organization that is focusing on a product differentiation strategy may develop a reward system that encourages innovation to create unique products or services. A business that is more concerned about a cost reduction strategy may instead place an emphasis on recognizing ideas that reduce or cut costs and offer employee stock awards to enhance the continuous cost-reduction focus.

Michael Porter's (2009) strategic typology has long been used to discuss, categorize and select organizational strategies. He divided strategies into these types: differentiation, cost leadership, focus or combination and argued that through the implementation of one of these strategies, an organization will gain a competitive advantage and above average industry returns. Differentiation strategy is when an organization focuses its activities on providing a unique product or service that is tailored to the customers' needs and differentiates it from the competition. It allows the company to charge a premium price based on the product characteristics, the delivery system, the quality of service, or the distribution channels. The quality may be real or perceived, based on fashion, brand name, or image. The differentiation strategy appeals to a sophisticated or knowledgeable consumer interested in a unique quality product or service and willing to pay a higher price for these non-standardized products (Aiken et al., 2006). When properly integrating this strategy with employee motivation, the incentive may be provided in response to innovation in product or marketing ideas or methods or suggestions for enhancing product quality.

Porter's (2009) generic strategy of cost leadership emphasizes attaining a greater share of the market from the competition by having the industry's lowest costs. In this strategy, an organization needs a low-cost management attitude, manufacturing with a rapid distribution and replenishment system and employees who are committed to this low-cost strategy. It is necessary to discontinue any activities without a cost advantage and sometimes outsourcing activities to other organizations that have this benefit (Aiken et al., 2006). Cost leadership can be achieved through myriad ways, including mass production or distribution, product design, economies of scale, technological changes, product design, capacity utilization of resources, and raw material availability. Incentive programs that are integrated with those companies having a cost leadership strategy will encourage activities that reduce the cost of products and materials, for example.

In a focus generic strategy, the organization normally focuses on a narrow niche segment in the marketplace. It may target a select customer group, such as young adults or baby boomers, for instance; product range; market segment, such as professional craftspeople vs. doing it on one's own; geographical areas, such as Northern vs. Southern U.S., or service line. A successful focus strategy will be based on an industry niche that is large enough to have excellent growth potential but small enough that competitors do not find it of interest (Aiken et al., 2006). A recognition program that is integrated with this strategy, for example, may notice those who suggest a new product or service that could be of interest to the particular niche or consider another way to market to this particular target market. A company may also decide to combine strategies, such as a generic strategy of low-cost or differentiation with the focus strategy. For instance, an organization may establish a focus / differentiation strategy or a focus/cost leadership strategy.

Before a company decides on an employee motivation program, it should give careful consideration to the company's corporate strategy that is behind the plan implementation. As is the case for every management system, well-thought-out and crafted compensation programs should not be developed as separate entities, just because they are popular at the time or they worked well for one company, so why not for all of them. It is critical to understand the reasons why the plan is being developed and implemented and the specific goals the company hopes it to attain. Compensation goals that are well considered will be helpful in the process of choosing the incentive program format that best supports the company's business and human resource needs (Nederhoff, 2000).

According to Pritchard and Ashwood (2008), whether an organization follows a market-based, performance-based or hybrid plan for its incentive plan depends entirely on the organization's objectives, overall corporate strategy and underlying management philosophy of the company itself. The company's reward or recognition program is best seen as a communication vehicle through which it identifies for its employees and management what mission it expects to fulfill, the strategy by which it will do so and the goals that, when completed, will indicate the satisfaction of the company's purpose.

In order to compete in today's competitive marketplace, organizations have to increasingly look at ways to expand market share, lower costs through greater efficiency and to attract, retain and continually motive top talent. In order to fill their talent pools with the highest quality candidates, companies are increasingly designing more attractive and innovative compensation packages and incentive programs. Creative programs for compensating new ideas, sharing company profits, supporting performance and continually developing better employee skills and competencies all help organizations attain their key business goals in such an intense competitive environment.

If designed in the right way, an incentive program will align with the company's overall strategic business objectives. Thus, if an organization's future success depends on teamwork that will build better niche products and services, it will be necessary for it to reorganize from a hierarchical top-down chain of command to a much flatter and wider cross-functional and integrated organization. In this case, for example, an incentive plan that features a profit-sharing component or incentives may be of help to enhance the teamwork necessary and lessen cross-departmental silos (Pritchard and Ashwood, 2008). Whatever the connection is between a company's key goals and its incentive plan, it must be clearly, definitively and continuously communicated to the whole workforce -- from the top down. Every speech by top management, every newsletter, every Intranet blog or ezine, needs to include information about this program, why it is being implemented and how it fits into the company's strategy. There needs to be small group meetings within departments with managers, as well as meetings with the top management where employees have the opportunity to ask questions. The communication needs to include

1) why the incentive program was designed; 2) The business goal is it designed to accomplish, and in what way does it link to the organization's overall business strategy; 3) How competitive is the program? What behaviors will it motivate? And 4) How does the compensation program impact individual employees? Does anyone stand to benefit or lose anything through this program?

Communication does not only take place when the employee motivation plan is implemented, but on an ongoing basis to all employees. There needs to be articles on how employees benefit in each weekly or monthly newsletter, for example. Just as important, any time a new person joins the company, he/she needs to be completely informed about the incentive program. That person should not hear about the incentives secondhand from other employees or only read about it in the employee handbook. Instead, new employees should be told directly about the programs in their interviews and then again when joining the company directly from someone in human resources in addition to reading written or viewing audiovisual materials. At the same time that the program is being discussed, so too will the company's strategy and mission, vision and goals, since they all go hand-in-hand (Jackson, 2002).

Similarly, supervisors have to be trained on how to support and promote the program to line workers. Through their descriptions and actions, these supervisors will be communicating to employees what the organization values and wishes to reward. If the supervisors do not know the information about the program or do not show interest in it, how can the company expect that the employees will? The supervisors must also demonstrate their ownership of the incentive program and assume responsibility for the decisions they make in agreement with it. At no time should they bad mouth upper management or human resources and its incentive program. Even an off-handed remark can sabotage the best attempts to introduce a new program, which completely wastes all the time and money put into the program as well as sets the company back to square one in its ability to reward its better employees. There are always those who see incentive plans, no matter how well they are designed, as unfair to them and too beneficial to others. In fact, part of the incentive program, itself can be a reward program for those supervisors who best train their employees about the incentive program in a nonbiased, clear way and make sure that their employees are best taking advantage of the rewards and recognition.