Managing Employee Recognition Programs

Overview

Employees not only want good pay and benefits; they also want to be treated fairly, to make a substantial contribution to the organization through their work, and to be valued and appreciated for their efforts. To show appreciation, many employers implement ongoing recognition programs designed to thank employees for a variety of achievements. 

Among the most common programs are those that recognize:

• Length of service, generally in five-year increments.
• Exemplary one-time achievement, often with an on-the-spot cash award or additional paid time off.
• Noteworthy performance over a period of time, often for employees who add quality to the work process or product or who provide superior customer or client service.

Rewards range from simple spoken or written thank-you notes and "spot" bonuses of cash or gift cards to catalog merchandise and gift certificates for retailers or restaurants. Organizations may even provide vacation packages for employees' special achievements. Some programs that reward excellent work provide nonmonetary awards such as public recognition or staff appreciation events. 

Department heads are essential for employee recognition efforts, from helping to select recipients, for example, to making time in staff meetings to thank employees for outstanding efforts. The point is to say "thank you" frequently to employees who deserve it.

Although organizations typically recognize employees' length-of-service milestones and instances of strong individual or team performance, many organizations are beginning to focus on other, less traditional areas for recognition. Among them are the following:

• The ability to manage or champion change.
• Innovation.
• Systems improvements.
• Customer or client retention.
• Morale-building.
• Talent acquisition and retention.
• Market diversification.
• Technological advances.
• Significant personal development.
• Actions that embody the organization's core values.

See Appreciate Your Employees.

Business Case

Organizations adopt employee recognition programs to raise employee morale; attract and retain key employees; elevate productivity; increase competitiveness, revenues and profitability; improve quality, safety and customer service; and reduce employee stress, absenteeism and turnover. See Generation Z and Millennials Seek Recognition at Work.

Organizations consistently recognized as "great places to work" are typically those that frequently recognize, validate and value outstanding work—not only by telling employees they are doing an excellent job but also by giving them cash rewards or noncash incentives.

In addition, awards and incentives can keep employees motivated and reinforce organizational expectations and goals during times when merit budgets are small or frozen, promotions are scarce, health care premiums are on the rise and overall job satisfaction is low. See 7 Affordable Ways to Boost Morale and Meaningful Recognition Doesn’t Have to Be Expensive.

A positive employee reward and recognition strategy essentially reflects the conviction that nothing is better than a sincere "thank you/job well done." In an era of increasing competitiveness for top talent, a well-managed recognition program can provide valuable help for employers that must use every available means to attract and retain the best employees and keep them engaged and productive. See Viewpoint: Why Showing Gratitude to Employees Is as Important as Generating Revenue.

Policy and Design

Employers should provide a clear, written policy and guidelines describing the recognition program and its terms, including:

• Employee eligibility requirements.
• The approval process.
• The types of awards that will be provided.
• The frequency of award presentations.
• The performance goals that will be measured.
  
• The thresholds for awards.

When defining the decision-making process and the levels of approval required to receive an award, authority and responsibility for program administration should be distributed as widely as possible in the organization.

The organization should communicate both the criteria and examples of the types of work behaviors that warrant an award. This communication will help all employees understand how to judge the desired outcomes. It will also ensure timely recognition, which is necessary for the program to be effective.

In many organizations, performance reviews for managers and supervisors include a section on how well they reward and recognize strong performers in their respective departments or divisions. Knowing that they will be measured on how well they have used the available tools for motivating employee results tends to help reluctant managers focus on using the programs.

Some employees may not be as motivated as others by an organization's incentives, so organizations should offer a variety of incentives and recognition opportunities to meet various employee needs. For example, some workers may be motivated more by time off than by money while other employees may find bonus incentives more attractive. Because job types, job levels, work locations and working environments differ, offering a variety of both cash and noncash incentives is usually most effective in making the program meaningful to all participants. 

Finally, when designing a recognition program, allow it to be adjusted later as circumstances warrant—new situations may suggest new ways to recognize employees. See 4 Ways to Adapt Employee Recognition Programs to the Virtual Workplace.

Essential Criteria for Success

For a recognition program to be effective it should meet several criteria. The program should be well-funded, aligned with organizational goals, appropriate for employees' achievements and timely. The methods of presenting awards must be managed well, with managers themselves playing key roles. The process for choosing and recognizing employees should be straightforward, and the program should be reviewed and evaluated regularly. See Is Your Employee Recognition Program Falling Flat?

Sufficiently funded

The key to success for a recognition program is management's commitment of resources. During the budgeting process for the year ahead, the organization should earmark funds for the program and establish methods for distributing the funds to departments, divisions or subsidiaries. Managers must dedicate the resources—including the time it takes to plan and execute a program—and must enable employees and supervisors to run the program.

Through this process, managers can see that the distribution is fair and equitable and that the money is allocated and immediately available to fund the program once it is announced to employees.

Aligned with goals and values

Recognition programs are most successful when they are aligned with the organization's mission, vision, values and goals. Employees can tell if there is—or is not—a clear connection between what management says is important and what is actually rewarded at work.

Appropriate

Employees must understand the rationale for a recognition program and should be convinced that the awards are in line with the achievement and the degree of effort they represent. A recognition system will falter if employees feel that their work is trivialized or even insulted by inconsequential incentives or insincere gestures of appreciation. Awards should be consistent with the employee's achievement and meaningful to the person receiving it. An employee who completes a two-year project should be rewarded in a more substantial manner than an employee who does a quick favor for a manager.

Program participants must believe that the recognition system is just and objective. Thus, all employees who meet the criteria for receiving an award should be included and recognized. And employers must make certain that the awards are in keeping with the organization's culture; what works in one environment may not work in another.

One way to ensure that the program is seen as appropriate is to give employees a role in guiding its direction. Some organizations have employees take part in choosing incentive recipients and in selecting rewards. See How Flexible Rewards Programs Boost Employee Engagement and Put Recognition in Your Employees' Hands. 

Timely

The reward or recognition should be delivered as close as possible to the time of the desired behavior to strengthen the link between the employee's action and the result to the organization.

Although some organizations designate a specific day or week for employee recognition, recognizing employees in real time rather than waiting for a future event is considered the better practice. See Instant Feedback Tools Can Boost Engagement, Productivity.

Artfully carried out

The manner of delivery can make or break a program. The reason for the award—the behavior that is being reinforced—should be spelled out. Awards should be presented in a sincere and heartfelt manner. Employees can be motivated more by a manager's single act of personal consideration than by a substantial gift delivered poorly.

Although recognition awards are generally presented directly to recipients by their manager, in some organizations, awards are held for presentation at a special event such as a banquet, a luncheon, a staff meeting or a companywide meeting.

Some employers can generate recognition awards and gifts—for teams at multiple sites, for example—via the Internet.

Sometimes awards are mailed to the employee's home. Beware, though, of the form letter. One quick thank-you note personally written by the employee's manager and hand-delivered to the employee will have much more impact than a perfunctory form letter and a coffee cup with the company's logo.

Managers and supervisors may neglect to recognize employee achievements because they do not know what to say. A simple recipe for recognition can work magic: Thank the employee by name, state what the employee did to earn the recognition, explain how you felt about the employee's achievement and how it added value to the organization, and thank the employee again by name. Addressing the person by name and saying that you personally value his or her effort can be as motivating as the actual reward.

Managers must know their subordinates well enough to know the types of awards and recognition they would regard as motivating and important. See Company Gifts That Workers Hate.

Administratively uncomplicated

The entire recognition process should be managed with a minimum of administrative effort. A system that requires excessive management control, complex financial calculations or exceptional employee efforts to be understood will not likely achieve its desired results. See Keep It Simple and SHRM's Guide To Employee Recognition Vendors.

Regularly evaluated

Programs must be monitored continually for relevance. Employers should consider asking the following questions when evaluating their programs:

• Are the program's rewards adequate, fair, competitive and appropriate?
• Are the program's objectives being met?
• Is the program helping improve processes in the organization, and does it support performance initiatives?
• Are there appropriate levels of communication?
• Are there celebrations?
• Do employees find the program meaningful?
• What should be done differently?

The evaluation process should be completed after every award cycle so that adjustments can be made to improve the system and retain employees' interest. Employers should keep in mind that the behaviors rewarded are likely to be repeated. 

Management Training

Few managers are "naturals" in carrying out employee recognition and awards programs. Most need to acquire skills related to recognizing employees' contributions and giving effective feedback and praise. All managers should be trained to do the following:

• Stress the importance of the program to employees, and explain how it can affect the company's bottom line.
• Help employees understand the impact their performance has on the organization's goals and how they drive the business to succeed.
• Discuss the approach for managing and rewarding individual and team performance.
• Explain how the program works and how employees can achieve recognition.
• Learn ways to motivate and inspire others.
• Learn how to communicate needs, expectations and goals clearly.
• Deliver appreciation and praise in a sincere and timely manner for maximum results.

Ideally, training should begin as high in the management hierarchy as possible and produce results that prompt involvement by senior management. The lack of participation by executives may not prevent others from achieving meaningful results, but it may lengthen the time it takes for the program to reach its intended objectives.

Managers should be reminded about the many ways they can recognize and reward employee achievement so that they feel comfortable deciding the best types of recognition and how to present them to their employees. See How Technology Amplifies Recognition, Helps Stem Turnover.

Tax Considerations

Employee recognition awards have certain tax implications. Although there are exceptions, awards employees receive are generally taxable and must be reported as additional earnings on an employee's Form W-2 at year-end. Detailed guidance can be found in the Internal Revenue Service's Internal Revenue Code. The code's Section 102 (gifts and inheritances), Section 274(j) (achievement awards) and Section 132(a) (de minimis exclusions) should be reviewed carefully.

Employers should consult with an experienced tax attorney before instituting an employee recognition program to fully understand their tax obligations and how giving such awards could affect employees. In addition, to prevent later misunderstandings about tax consequences, employees receiving such awards should be told how their awards could affect their taxes.

Ordinary business expenses in the promotion of employee morale, however, are not generally taxable. Examples of such expenses are occasional business lunches; office gatherings; or flowers for bereavement, hospitalization or family crises.

See Achievement Awards Still Deductible—Within Limits—Under Tax Act and Are there any tax issues we need to be aware of when we give employees a gift card or other small gift?

Communication

When starting a new recognition program, organizations must provide supervisors and managers with information about the rationale for the program and how it will work before they begin to field questions from employees. A Q&A packet can be an effective way to brief managers. Once supervisors and managers are up to speed, the organization's senior management should send out a kick-off communication to all employees explaining the reasons for the program and the potential rewards.

Different methods of communication can be used to disseminate information about the recognition program. Intranet postings, staff meetings, new-hire orientation materials and e-mail are examples of how to spread the word to employees.

The means of telling employees who is receiving recognition and why depends on the organization's culture, including how comfortable employees and managers are with public recognition. In some corporate cultures, recognition by peer groups is significant. In others, an acknowledgment in the company newsletter is sufficient. In some instances, such as a spot cash award, the award itself may be all that is necessary. In other circumstances, having the CEO present awards at more-elaborate ceremonies in front of all employees may be best.

Metrics and Reporting

An employee recognition program should include a means of measuring the value it creates. Few organizations track the return on investment of their employee engagement or recognition programs. Those that do such tracking, however, generally use employee retention levels, overall financial results and employee productivity levels.

Programs should also be monitored continuously to keep them relevant and current. Among the questions that can help determine the program's effectiveness are the following:

• Are rewards adequate, fair, competitive and appropriate?
• Have the program's objectives been met?
• Has the program helped change processes, or did it support the organization's other performance initiatives?
• Does the program have appropriate levels of communication?
• Do employees find the program meaningful?
• What changes should be made?

See Technology and Metrics Overlooked in Recognition Programs.

Global Presentations

Major international companies such as Motorola, FedEx, Xerox and IBM have implemented "virtual" recognition programs that provide nearly instant employee recognition and awards via the Internet and other technology. This type of recognition can be especially valuable in rewarding multiple-site offices and global operation teams. 

Additional Resources

Checklist: Employee Recognition/Awards

Letter of Appreciation

Recognition Program and Nomination Form

Spot Award Bonus Policy

Service Recognition Awards and Retirement Gifts Policy

Employee of the Month Recognition Policy

Employee Suggestion Program Policy

Sample Presentation: Employee Recognition