Is There Really an ROI in Employee Recogniton?

I’m often asked, “Where’s the ROI in recognition?”

One answer is in the dramatic, double-digit boost strategic employee recognition regularly gives to employee engagement. (Towers Watson reported a 15 percent increase in employee engagement correlates to a 2 percent increase in operating income.)

Another less obvious but more powerful impact on revenue is having a strategy for improving company performance through your people.

Mark Harbeke reported on analysis of companies who applied for Winning Workplaces’ Top Small Company Workplaces award that those how had such a strategy had a 41 percent higher average revenue in 2010 than those who did not.

Empowering employees through performance management

Mark’s research into small companies is born out in CEO research conducted by Hay Group, reporting:

Some 13 percent of firms align their performance management system to company strategy.
93 percent of U.S. business leaders stress that culture has an important influence on the effectiveness of performance management.
Only 27 percent of firms align their performance management strategy to company culture and values.
36 percent of U.S. business leaders believe managers in their firms fail to use their performance management process effectively.
40 percent do not actively support the performance management process.

Katie LeMaire, vice president at Hay Group, commented: “Most organizations view performance management as a process for controlling compensation. Leading organizations treat it as a management process that empowers employees to drive performance and creates discretionary effort.”

Deep understanding of company values is key

The disconnect in poor performance management practices is clearly significant. The Hay Group research has born out our findings that a deep understanding of the company values and strategic objectives – to a level that it matters to employees in their work – and a company culture of appreciation based on mutual respect is foundational to company success.

Blending detailed, specific employee recognition data with performance management processes not only adds data points to a performance review. It also ensures the performance management system clearly reflects how individual employees (and even teams and divisions) are producing to deliver the strategic objectives in line with the company values.

Be sure to read my colleague Carol Meyers’ post on these research results to see how this is critical to increasing productivity when employees are already producing beyond capacity but executives are not yet ready to increase hiring.

This originally appeared on Derek Irvine’s Recognize This! blog.