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Hands Off The R&R Programs!

As the struggling economy forces companies to adjust their business strategies, recognition and rewards programs are still considered valuable investments, according to this special advertising section.

Wednesday, July 1, 2009
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Over the past several years, many people have lost their jobs. Some their homes. Others helplessly watched as their savings or retirement accounts practically vanished.

Today's economy is brutal, wreaking havoc on everything from a company's workforce to its bottom line. However, there's one HR function that hasn't been as hard hit as other areas: employee rewards and recognition programs.

Granted, there have been some adjustments and well-publicized scrutinies of higher-end reward practices for companies' top employees, particularly in industries where federal bailout money has been doled -- perhaps the most notable being the recent cancellation by Wells Fargo & Co. of a recognition trip to Las Vegas.

But for the most part, when searching for ways to cut budgets and boost profits in a down economy, HR executives aren't willing to sacrifice programs that engage their general-population high-performers or motivate them to drive their companies forward. Losing valuable staff during hard times could plunge an organization into an untimely death.

Reward and recognition programs are considered by many to be an integral part of a company's strategic business plan. So instead of abandoning such programs, companies are changing them to accommodate smaller budgets while reaching out to a larger percentage of their workforce.

At MetLife Auto & Home in Charlotte, N.C., it's business as usual. As the company carefully watches its bottom line, its rewards and recognition programs remain untouched, receiving the same budget as last year for its 4,000 employees, says Tommy Lee Hayes-Brown, multicultural sales and service manager who founded and managed the company's rewards and recognition programs several years ago. He currently mentors employees who run the program.

Since 70 percent of the company's employees work in claims -- MetLife's most active business unit -- reward programs are administered by the claims department, not HR. Claims oversees three types of R&R programs: a traditional peer-recognition program; immediate rewards, through which supervisors give employees small tokens, such as candy bars; and informal rewards, through which managers may throw a party for staff who met a project deadline.

Although the programs haven't changed due to economic conditions, Hayes-Brown says they're periodically tweaked to better reflect the company's new goals and market conditions. For example, streamlining processes was a major category under its peer-nomination program, which has since been replaced with innovation.

"We have always considered employee engagement and recognition as part of our overall strategy," says Hayes-Brown. "So that won't change when times are good or when times are hard. It's a business imperative for us that we make sure we are recognizing and identifying the behaviors we want to see repeated."

Some Altered Approaches

Despite companies' efforts to keep them alive, however, recognition and rewards programs are certainly undergoing changes -- a move by many businesses that is driven by the economy. The New York-based Incentive Research Foundation conducted The Summer 2008 Pulse Survey, which highlights key changes based on responses from incentive travel providers, corporate incentive travel buyers, suppliers, hoteliers and others. Here's what the 80 survey participants reported:

* Eighty-one percent cited the economy's negative impact on their travel-incentive programs. Many have shifted from international to domestic destinations and reduced the number of days/nights and on-site inclusions.

* Nearly half (48 percent) experienced the economy's negative effect on their merchandise's non-cash incentive programs. Some increased the use of debit/gift cards and decreased merchandise award value.

* Seventy-three percent permanently changed how they measure the success or ROI of incentive programs.

* Sixty-one percent experienced significant incentive-program budget cuts. The most frequently mentioned were number of total qualifiers or recipients, the awards budget and incentive-program on-site gifts. However, 6 percent reported a budget increase.

* Sixteen percent decreased the value of merchandise awards.

* Nearly half (45 percent) believe that perceptions of program extravagance caused changes in their program.

Even hiring incentives are changing due to the economy, adds Juan D. Morales, managing director at Stanton Chase International, an executive-recruitment firm in Miami.

He says signing bonuses have decreased by roughly 10 percent. Unlike the past, employers are rarely buying homes from executives whose new job or promotion requires them to relocate. But if they still move, he says, temporary housing reimbursements have also shrunk from six to 12 months to 90 days.

"The economy has a direct effect on the recruiting industry," says Morales, adding that his company's revenues have dropped by 20 percent compared to last year. "Getting people to relocate is trickier than it used to be."

Rethinking Strategy

Last fall, O.C. Tanner held a conference covering the economy's impact on rewards and recognition programs, which attracted 130 top executives from different industries around the country.

Many views were expressed, including the need to hunker down and "wait for the cavalry" to come and save the day, says Dave Petersen, president and chief operating officer at O.C. Tanner, the Salt Lake City-based company that offers employer solutions for appreciating employee achievements.

"Others realized that there is no cavalry coming," he says, adding that the troops are already here -- employees -- and they need to be rewarded for work accomplishments.

Meanwhile, companies in the downturn are paying less attention to the type of awards being given and more on the program's strategy. How do the awards connect employees to their manager or advance the company's mission? Others are offering more training or changing the criteria for award winners. For example, during tough times, says Petersen, companies tend to value different employee behaviors, such as innovation, and reward accordingly.

"We haven't seen very many wholesale cutbacks," he says. "There are clearly areas where companies will look to reduce either permanently or temporarily, but [rewards or recognition] is not their first choice."

Likewise, companies are scrutinizing employee performance more than ever, ensuring they can still afford to reward high performers, adds Tom McMullen, U.S. reward practice leader at the Hay Group, a global management consultancy in Chicago.

But in order to do that, they need to weed some folks out of the receiving line, he says, explaining that "as the incentive pot shrinks, tougher calls are being made as to which employees are the most, and least, deserving."

More changes are occurring in retail. Employee bonuses are now being handed out twice a year, at lesser value, instead of annually. While employees prefer more frequent payouts, he says, it also helps the company better forecast sales, since projections are now done in six-month intervals.

Another trend is a renewed emphasis on golden handcuffs. McMullen says companies in panic mode are offering more income mechanisms to executives such as restricted stock or milestone cash awards to encourage them to stay on the job.

Some companies are also downsizing their rewards, migrating from big-ticket items to lower-priced rewards, but rewarding more employees.

That's mainly why Globoforce experienced a 30-percent surge in sales throughout 2008, says Eric Mosley, the company's co-founder and chief executive officer. The company, co-headquartered in Southborough, Mass., and Dublin, Ireland, provides on-demand employee-recognition solutions.

"Cumulatively, that [surge] has added up to an actual increase in our business," Mosley says. "Five years ago, the average reward value in recognition programs was about $1,000 and their penetration was 10 percent to 20 percent of the workforce. Now, the average is $100 and strategic companies, progressive companies, want 80 percent to 90 percent penetration in their workforce."

According to Mosley, large companies can't change employee behaviors or attitudes by touching only 10 percent of their staff. They need to touch at least 90 percent and frequently, which is causing a general trend toward the development of reward and recognition programs that cost less to launch, yet engage the majority of the employee base.

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Globoforce recently introduced a $10 reward, responding to a global company's need to offer small rewards -- which can be built up over time -- to employees in developing nations. Mosley doesn't necessarily see this low-of-a-price item as a trend, however, since low-end rewards can backfire or be counterproductive if employees feel under-valued by the amount. On average, he says, most companies spend about $40 per reward.

"Ten years ago, HR would have been very uneducated about the science behind this," he says. "We've just seen an awakening of what it actually takes to change a culture. Sometimes a recession or slowdown can accelerate this movement."

Healthy Outlook

A.O. Smith has been hard hit by the economy. As a manufacturer of water heaters, boilers and electric motors, it has felt the effects of the downturn for more than a year.

"It's been a very challenging year," says Mark Petrarca, senior vice president of HR and public affairs at A.O. Smith, based in Milwaukee. "There've been lots of discussions about areas that we can cut back or reduce, [but cutting rewards and recognitions] has not been something that has been at the top of anybody's list. It's important that we continue to recognize those desired behaviors that we're trying to instill in our workforce."

In fact, employee rewards at A.O. Smith have been expanded in an effort to drive down healthcare costs. The company recently developed its own program called Healthy By Choice, which pays employees $25 for participating in an annual biometric screening and health-risk assessment.

It also partnered with Tangerine Wellness Inc., a Boston?based company offering an interactive weight-management program that also provides quarterly cash rewards for participating employees. They use online tools to track their eating and exercise habits and are e-mailed daily wellness tips focusing on weight loss, diet and exercise.

So far, the Tangerine program has been piloted in four locations, attracting nearly 600 employees. Employees collectively have lost 4,000 pounds, he says, and earn up to $50 every quarter that's deposited into a VISA account by Tangerine that employees use as cash.

The company isn't shy about rewarding employees. Despite the poor economy, Petrarca says, the Tangerine program will be expanded from four to nine U.S. locations. Meanwhile, there's a corporate HR initiative to examine all reward programs to decide what's working, what's not and if additional reward programs are needed.

To do so, HR formed a cross-divisional team of HR staff to gather feedback from 20 to 30 different department leaders and their employees about the effectiveness of the programs.

While the programs scored high marks, says Petrarca, managers didn't fare as well. Some of the feedback suggested that managers need to enhance their presentation skills. So the company partnered with its service provider -- O.C. Tanner -- to help managers do a better job presenting awards.

"We're trying to make sure we spend our money wisely," says Petrarca. "Instead of the shotgun blast, we're doing more rifle shots, really focusing on our expenditures in areas that will give us the greatest return.

"We're being very fiscally responsible," he adds, "but in the same token, we recognize this as a time to make some investment in our people and future."

Although the economy is forcing human resources to cut budgets, offer smaller rewards or take a second look at reward programs, the good news is there haven't been any knee-jerk reactions, according to Karen Renk, executive director of the Incentive Marketing Association in Naperville, Ill.

Renk says she hasn't heard of any company eliminating its rewards programs because of the economy.

Changes she has noticed include employers handing out more practical rewards, such as gift cards for gasoline or vouchers for local grocery stores, and offering low-end rewards to include more program recipients.

Recognition and rewards programs are important, especially during a down economy, she says. Employees often need to be motivated to tackle more responsibility due to layoffs or perform their jobs in the midst of salary freezes. Rewards are also an effective tool for recruiting hard-to-find talent.

"Any organization that's going to succeed in this global economy is going to [need] top talent, [will need to] deliver superior customer service and [will need to] make sure that the programs it has in place are viewed as beneficial by employees and customers alike," Renk says. "To cancel or eliminate a program because the economy has taken a dip is not looking to the future."

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