Research / Budgeting for Recognition Toolkit, Section 1: The Business Case for Corporate Recognition Programs

Budgeting for Recognition Toolkit, Section 1: The Business Case for Corporate Recognition Programs

by Incentive Research Foundation

A recent report by Inspirus cites research that suggests recognition programs reduce turnover and absenteeism by 31% and 41% respectively. The costs of turnover have been widely estimated at one-third annual compensation or more. Recognition and appreciation also contribute to lower employee stress, enhanced feelings of inclusion and belonging, and greater overall employee happiness, resulting in more creativity. The Inspirus report estimates resulting productivity improvements at 31% and finds that these improvements may be even more pronounced among remote workers. Finally, recognition programs contribute to higher employee engagement, reducing the numbers of the actively disengaged, who, according to Gallup, constitute 17.4% of the typical firm’s workforce and cost their firms $3,400 for each $10,000 in salary.

Current academic research and advances in neuroscience support long-held psychological theory – and the experience of most observers – that people will go to significant efforts to earn appreciation and approval. In the workplace, this includes recognition from managers, peers, customers and other stakeholders. Here again, extensive research and empirical evidence suggest that most employees work harder for recognition. They repeat and continue behaviors and actions reinforced by recognition – social recognition in particular – leading to higher employee engagement, greater performance, lower turnover and better business outcomes.

“The most memorable recognition comes from an employee’s manager (28%) or an executive-level leader (24%).” – Gallup, 2016

Social recognition, including that which includes small tangible rewards, avoids the potential problems associated with cash rewards (high cost, low emotional impact, acquisition guilt, expectations-setting, etc.). Its largely symbolic and informational components generate a reciprocity effect (the desire to repay recognition with more effort), motivate desired behaviors, and effectively signal what’s important to the organization. Because broad-based recognition programs promote behaviors that garner social approval (behaviors and actions the organization values), it complements compensation, bonuses, and other rewards, often achieving similar results at lower costs than cash.

Thus, even if one attributes only a small portion of reductions in absenteeism and turnover, productivity gains, and higher engagement to recognition programs, the financial justification is obvious. The non-financial returns on recognition – in terms of reduced stress, greater feelings of belonging, more happiness, and enhanced creativity – might even eclipse the financial returns and ROI of recognition programs. And when combined with other elements of behavioral management, including competitive pay and rewards, feedback, career planning and autonomy, etc., the already significant impacts of social recognition on performance, engagement and retention, are greatly amplified.

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