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Uncomfortable Bedfellows: Compensation and Recognition
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Employee recognition, at its core, exists to help people feel more connected to purpose, accomplishment, and each other. But regardless of good efforts and best intentions, some recognition programs still fall flat.
According to O.C. Tanner’s most recent Global Culture Report, which is based on data gathered from over 40,000 employees and leaders in 20 countries, 45% of respondents said that their recognition program feels stale and disconnected from what’s important to the organization. Additionally, nearly half said their organization’s recognition program is used as disguised compensation.
All of which is to say that recognition in the workplace can be powerful, but to maximize its potential, it needs to feel genuine. With so many employees feeling a bit duped, there’s clearly a problem here.
Where do companies go wrong?
Issues often stem from one core element: Many companies lump recognition in with benefits and compensation under the same total-rewards strategy. A lot of these total rewards programs include monetary bonuses and/or variable pay. And given that a subset of recognition programs includes bonuses and incentive options, those monetary rewards are labeled as recognition. But they shouldn’t be. That’s compensation, and compensation should be separate.
Still, while seemingly plausible on paper, combining the two buckets strategically can create challenges. For example, when times are tough (e.g., the past year) and you’re not able to pay your bonuses at 100% or the numbers aren’t quite where they need to be, it’s easy to see how you’d want to use something like recognition to make the financial effects hurt less.
Even though swapping compensation and recognition in for one another may seem like an effective strategy to keep workplace engagement up, it doesn’t work quite that way. The minute recognition becomes compensation, it becomes transactional.
Compensation and benefits are transactional by design, and that’s a good thing. We need to be able to count on them, to know when we’re getting paid and how much, so we can pay our bills and put food on the table.
Recognition, on the other hand, should be more experiential, focusing on encouraging everyday efforts and rewarding results. Generally, recognition shouldn’t be treated as an incentive (if you do A, then you’ll get B). When that happens, it becomes transactional. Now, there’s nothing wrong with something being transactional. It’s only wrong when transactional and experiential efforts crisscross as replacements for each other.
When recognition becomes like pay, it becomes expected, and it loses some of the magic behind it — that unexpected but well-deserved acknowledgment. In turn, it doesn’t feel as personal to employees and consequently has the opposite intended effect — a decrease in morale.
Understandably, this notion of separating recognition from benefits and compensation becomes a bit muddy when you try to navigate around the reality that cash is king.
Over the years, we’ve talked to many companies and clients that have surveyed their employees and found that the No.1 thing employees want to be recognized with is more money. But when that happens, you often get a classic situation: You ask employees later what they used the money for and they either say “I used it to pay bills” or “I can’t remember.” It’s not meaningful to them and it becomes transactional.
That’s why it’s important to step back and figure out what you’re trying to accomplish — that is, what’s the outcome you’re trying to achieve through the recognition moment? And then based on those desired outcomes, how do you structure your program and allocate budgets accordingly?
You should use cash sparingly, if at all, in a recognition program — and only at the highest award levels. A choice of items including experience-based gift certificates, merchandise, and symbolic awards are better suited for recognition.
However, the award in and of itself is not enough. An in-person or virtual presentation where the giver can express in a personalized way what the recipient did and why the work was so important can maximize the experience. This public moment not only leaves a positive impression on the recipient but also with others who participate as observers. (As opposed to pay, which you should typically give privately.)
If you’re underpaying your people, it doesn’t matter how much you recognize them. What’s more, you can’t hold on to people if you’re not paying them a fair and competitive wage.
Nonetheless, while money is foundational, it’s not everything. There was a time in my career when I was paid well but wasn’t appreciated or acknowledged. I was in an environment where I felt like people assumed I could be easily replaced. Needless to say, I don’t think that was a formula for long-term success, and I did end up leaving that company for greener pastures.
Ultimately, companies that have figured out how to create thriving workplace cultures are in a much better position to not have to rely heavily on compensation to retain their people. They can instead leverage pay and recognition in complementary ways to reward and recognize people. Again, the key is balance. But it’s also separation.