Organisations today realise they are fighting two battles. One for customers and the other for the best talent. There is also a realisation that the first battle cannot be won without winning the second. The need to invest in and nurture human capital in an organisation has become a basic requirement for all companies today. The workforce today knows and articulates its expectations clearly. These expectations are on the rise in good times. The rewards and recognition structures, of even as recent as five years ago, need to be conceptualised again to incorporate the expectations of this workforce.
Sources have revealed the link between effective recognition and an employees’ emotional and psychological well-being. In fact, studies show that lack of recognition is one of the largest risk factors for psychological distress in the workplace. Recognition at work helps employees develop tolerance to stress and also makes it easier for them to handle stressful situations. Successful recognition programmes can also be used to promote on-the-job learning and contribute to successful job satisfaction.
Although many organisations use the terms ‘rewards’ and ‘recognition’ interchangeably, understanding the difference can help organisations target the right programme to the right kind of people. Rewards typically have a monetary value attached to them. An increasing number of organisations are adopting a ‘Total Compensation’ philosophy encompassing all aspects of the rewards structure, including performance incentives, increments, long-term retention schemes, etc. Great Place to Work® includes the following in its definition of rewards:
1.Assured annual compensation.
2.Special or annual increases in assured compensation.
3.Increases in benefits and/or compensation with changes in grade, role or position.
4.Performance-based variable pay, incentives, bonus that may be monthly, quarterly, half yearly, annual or even a longer-term reward.
5.Reward for loyalty or long tenure.
6.Reward in the form of gifts or cash for specific actions, behaviours, and contribution.
7.Reward in the form of gifts or cash for contribution from suppliers, vendors, third party employees.
8.Reward in the form of gifts or cash for family members’ contribution.
9.Wide range of benefits and perquisites, i.e., those that are beyond the statutory mandates.
10. Long-term wealth sharing mechanisms such as restricted stock units, stock grants, phantom stock grants, stock options, discounted stock purchases, etc.
Recognition programmes typically have insignificant (if at all) monetary value attached to them and they are often symbolic in nature. Recognition is primarily a constructive response and reflects not only work performance but also personal effort and engagement. Research shows that in an ideal context, recognition is engaged in on an ad hoc and regular basis. Informal or formal, individual or collective, private or public; recognition is best received when it occurs closest to the action.
It is important for organisations to create and maintain a ‘climate of appreciation’, with sincere appreciation of good work and extra effort, regularly and in a variety of ways. An organisation must develop methods of ‘thanking’ employees that fit the culture, vision and values. Thanking in most organisations is done by creating a wide variety of opportunities for employee recognition.
Edenred and Great Place to Work® India collaborated in 2013 for the second year running, to felicitate India’s Best Companies for Rewards and Recognition. A major part of the study findings were used to validate two points developed as hypotheses. In the process of testing data, the following differentiators between the companies identified as the best in Rewards and Recognition and the ‘rest’ were developed.
1.Wider distribution across levels and roles All forms of rewards and recognition need to be distributed across all roles and levels. Non-sales and non-operational personnel for example, need to be rewarded with separate performance incentives as well.
2.Liberal payouts and policies for medical benefits Again, the differentiator here is the fact that the Best Companies offer similar benefits across levels. Medical benefits are not limited by number or amount and are offered to all roles and levels in an organisation.
3.There is a higher level of differentiation based on performance, with lower fixed and higher variable pay. This is coupled with higher increment pay-out at the highest end of the range.
What is different between the best and the rest here is that the Best Companies offer a lower percentage of fixed compensation with more room for variable pay. The annual maximum increment for the Best Companies is also significantly higher than other organisations. This shows employees that there is potential to earn much more if performance levels are exceeded.
4.Higher proportion of employee ownership schemes (especially stock options) and a wider distribution across the organisation
The Best Companies offer these schemes to all levels in the organisation. Some of these organisations offer these schemes to all blue collar employees as well. The differentiating factors between the best and the rest that contribute to climate of appreciation in an organisation are:
1.Greater variety and parameters for recognition, greater chances for public recognition.
2.Recognition for effort, potential and skill levels and not just high performance. Inclusiveness in recognition, with a greater focus on every day recognition by managers, rather than the traditional monthly, quarterly or annual forums.
