Employees Want Rewards for Performance

Managers who fail to regularly express gratitude to their employees do so at their peril, a new report finds. Companies with a poor employee recognition programs have an attrition rate of 10.5%, three points worse than the 7.2% turnover rate at companies with an excellent program.

The finding comes from a survey of 573 human resources professionals conducted by Bersin & Associates, a membership-based research and advisory firm headquartered in Oakland, Calif. that specializes in HR.

Many companies still hand out tokens of appreciation, from the proverbial gold watch to copper plaques. The problem, though, is that most hand out these rewards based on how long an employee has worked at a company. Around 87% of companies surveyed by Bersin said that their recognition programs focus on tenure, but receiving an award for serving five or 10 years at one company does little to improve employee morale, performance or turnover, says Bersin analyst Stacia Sherman Garr, the report's author.

To make their recognition programs more effective, Bersin advises its members to reward behaviors like, say, teamwork, that align with the company's mission and values, and to make the mechanism for doling out praise easier. Many companies require a labyrinth of paperwork and bureaucratic approvals to make employees feel appreciated, Garr says.

Bersin also surveyed 261 employees, and found that many value recognition that addresses specific actions rather than general praise. In addition, many employees say the recognition they receive doesn't have to come from managers, but is also effective coming from peers and co-workers.

Employee recognition is a $46 billion industry, according to the Incentive Marketing Association, an industry group. Traditionally, companies like O.C. Tanner and Michael C. Fina have provided catalogs from which employees and managers can choose gifts. In recent years, a number of software start-ups have popped up to automate employee recognition.

Companies like Hoopla, Bunchball, and iActionable, often referred to as "gamification" companies, provide platforms where employees can give instant feedback to one another and earn points and badges for their performance. By instituting features like leaderboards and employee statistics, employees are encouraged to perform better so they can receive accolades.

"We're seeing a huge uptick in energy and questions around this modern method of recognition," says Garr.

There are several reasons why companies have become more attracted to these newer employee recognition programs, she says. The most obvious one is the economy. As companies are unable or reluctant to increase salaries, they're turning to recognition as a way of compensating people without paying them more. In addition, companies are promoting fewer middle managers and see recognition as a way of providing a similar self-esteem boost that in the past might have come with a promotion.

Write to Joseph Walker at Joseph.Walker@dowjones.com