THE BUSINESS CASE FOR RECOGNITION SCHEMES

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1 THE BUSINESS CASE FOR RECOGNITION SCHEMES Introduction The Corporate Leadership Council s latest research on the Employment Value Proposition, involving 90 organisations across the globe, established that Reward is one of the 5 key drivers for attracting people to an organisation. This research is also borne out by research undertaken by the University of Bath with Nationwide Building Society over the last 3 years, known as the Genome Project. Both research projects have also shown that whilst reward may be less effective in driving commitment, recognition is one of the key attributes for doing so especially if it is advocated by its most trusted channel employees. Recognition is not just about absolute numbers, it is about rewarding the right people who demonstrate the correct levels of commitment and behaviours towards an organisation. In turn, this will improve performance and lead to sustainable business growth. Recognition Schemes Recognition schemes have come a long way since the days when managers first began singling out an employee of the month, and they are now likely to be championed at the highest levels of a company. Today, approaches to recognition are often just one element of wider strategies for building corporate reputations and enhancing the employer brand. By visibly recognising and rewarding outstanding employee contributions, employers can be seen to be delivering on their claim that employers are our greatest asset. And employees who feel properly valued are likely to be more engaged, with consequent benefits for the business. Recognition as part of Total Rewards Recognition is now widely regarded as an important component of a total rewards approach, which can combine compensation, benefits, training and development and environment into one integrated function and/or set of offerings. Research shows that many organisations, particularly those in knowledge and technology-based sectors, as well as sales and service functions, operate comprehensive recognition schemes. Common trends in their usage, to achieve this greater business impact, include: Putting a greater focus on recognising key strategic business goals and values, such as teamwork and customer service, which in some cases can be difficult to reinforce with pay. Adopting a more inclusive philosophy of recognising as many winners as possible, rather than concentrating on a narrow elite of exceptional performers; in many sectors it is the contribution of all employees, not just a few superstars, who will really ramp up the organisation to world-class performance standards. 1

2 Using a wider range of rewards letters of thanks, gifts, points, vouchers, meals, holidays etc to suit different situations and differing employee needs. The concept of recognition is perhaps most effective when managers or employees are empowered to respond immediately when they see actions or activities that merit an award. This type of spontaneous recognition might be in the form of a simple thank you card, for example. In most other instances, however, recognition programmes operate on a much more sophisticated footing, using web-based technology and automated workflow processes for nominating and selecting winners. The key point is that schemes are not there to focus primarily on employees who are just doing their everyday job well. Instead, the aim is to highlight employees who have done something out of the ordinary, going above and beyond the call of duty. Analysing the Effectiveness of Recognition Schemes Analysing the continued business need for recognition schemes has become more complex in the last 5 years. The move towards a total rewards philosophy has challenged the value proposition of recognition in the context of how it is integrated, aligned, measured and delivered. Research by a whole host of management gurus such as Drucker, Peters and Elsworthy shows that recognition is still a powerful motivator, both from a monetary and non-monetary sense, if it fits with both an employer s and employee s expectations. If leveraged correctly with other business and HR metrics, there are few better examples of an evolving strategic approach to rewards than recognition schemes. Indeed, there is considerable anecdotal evidence to show that properly aligned recognition schemes can contribute directly to improved business performance. Award winning schemes which have met this criterion in the last couple of years include leading employers such as McDonald UK restaurants, Nationwide Building Society, Tower Hamlets Group, Intelligence Finance, United Utilities North West, amongst others. A Case Study A detailed case study of how Nationwide Building Society introduced a formal recognition scheme is attached. It explains why a recognition scheme was required, how it was integrated within total rewards, the various levels of awards, the delivery mechanisms and how recognition contributed to enhanced business performance. Bibliography: 1. Corporate Leadership Council Attracting and Retaining Critical Talent Segments Building a Competitive Employment Value Proposition (Washington DC-2006) 2. Nationwide Building Society - The Genome Project 3. Watson Wyatt - Integrated Rewards Driving Results Through Productive Engagement (Liz Wright 3 February 2006) 5F02A2A7662B/0/ 4. Corporate Leadership Council Total Rewards Philosophy Components and Statements (Washington DC November 2005) 5. Income Data Services Study Plus 820 Employee Recognition Schemes (London-2004) 2

3 6. Duncan Brown - Reward Strategies From Intent to Impact (CIPD ISBN (London-2001)) 7. Michael Armstrong - Employee Reward 2 nd Edition (CIPD ISBN (London-2000)) 3

4 A NEW PRIDE RECOGNITION PROGRAMME FOR NATIONWIDE BUILDING SOCIETY Context Nationwide is the largest building society in the world with over 11.5M customers (members) and an annual turnover in excess of 1.4bn. Nationwide is committed to remaining a building society because it believes this is in the best long-term interests of its current and future members. There are over 16,500 employees in the Society operating in approximately 750 locations in the UK and Northern Ireland. The main headquarters is in Swindon with an administrative centre in Northampton. Strategic Change The strategic decision to maintain its status as a mutual building society intensified the process already under way in Nationwide Building Society to review all aspects of its structure and operation, so as to succeed in the fiercely competitive retail financial services market. For example, a wholesale restructuring of the branch network was set under way, centralising back-office operations in regional centres, devolving more authority to line managers, reducing he number of layers in the organisation, and increasing the numbers and skills of front-line customer service staff. The new corporate business strategy wanted to maintain Nationwide s standing as a champion for consumers, building on its service excellence and deeply held values. In contrast, the Society wished to increase its par-share of the mortgage market through improved distribution and improve the cross-selling of new products, whilst reducing its cost/income ratio in line with competitors. HR & Reward Audit The HR function undertook a wholesale review of its practices and processes as a result of these business and structural changes, in order to improve the value it added to the business and to enhance HR s strategic position. The Society was by no means a laggard in terms of its market approach to pay and reward, having harmonised pay structures, and related pay increases to performance against agreed personal objectives. However, this in-depth review highlighted a series of issues with the existing pay and rewards practices, not least of all a mismatch between the requirement for employees to espouse a common set of behaviours and beliefs without actually being rewarded for it. The New Reward Strategy & PRIDE A new and evolving reward approach was implemented which was based on rewarding employees for attitude, contribution and commitment within a more flexible framework. To that end, line managers were given greater freedom and support to operate reward practices in the way that best suited their business unit. Underpinning the changes was the introduction of a values based approach named PRIDE which would emphasise common goals and the need to work together to achieve business success. PRIDE stands for: Putting members first Rising to the challenge Inspiring confidence 4

5 Delivering best value Exceeding expectations The concept was if everyone focused on PRIDE, then customers will enjoy doing business and remain loyal to the Society ; if employees lost sight of it, those customers were likely to take their business elsewhere. And the same concept was applied to employees. For their efforts to deliver PRIDE to customers, they should be suitably rewarded, especially when they went the extra mile. Strategic Framework of PRIDE Recognition The strategic framework of PRIDE recognition schemes is shown below. Corporate level or centrally managed schemes were limited to Seasonal Recognition Gifts and long service awards for recognising loyalty. PRIDE recognition awards were devolved completely to business units. Most awards were channelled through a web-based recognition platform, which was fully integrated with Peoplesoft HRMS and the payroll systems. Each employee was entitled to a value account linked to an online shopping channel. Employees could either redeem their awards for gifts, accumulate the awards in their value account, or trade up the awards for a gift using a debit or credit card. Most gifts were either discounted or the employee would receive a kick-back, thus enhancing the value of their recognition award. But there was a whole range of other low-cost ways, such as thank you cards or certificates to ensure that the employee was properly recognised for their contribution. Distribution Frequency Size Corporate Level To all employees against key eligibility criteria 1) Seasonal Gift. Annually in December 2) Long Service. On 10 th, 20 th, 30 th and 40 th anniversaries 1) Seasonal Gift. Usually 50 2) Long Service. Ranging from 50 to 1000 of value Local Level To as many as possible, when PRIDE behaviours have been shown As and when required Low value but still meaningful, eg letters, PRIDE cards, vouchers, gifts etc Currency Purpose Operation Stored Value Account or Supercheques with an E Seasonal card from CEO Reinforce importance of PRIDE values and for thanking employees at appropriate time for achieving key business goals Organisation-wide, centrally controlled on web-based platform Usually gifts or stored value account award Provide general broadbased recognition and thanks for good performance and significant efforts beyond the norm Devolved as far as possible. PRIDE budget set at 0.5% of each BU s payroll budget. Internal peer-to-peer nomination Peoplesoft workflow process linked to web- 5

6 based platform Proportion of Spend 40% 60% The Impact The recognition changes at Nationwide Building Society were designed to provide a powerful cultural message in terms of reinforcing PRIDE behaviours, both from an individual and team perspective. The new scheme was simpler to understand, and more efficient to operate through an integrated web-based platform, providing a common framework for schemes that are tailored to suit the needs of the different parts of a more diversified and geographically spread organisation. In particular the key benefits of the online recognition scheme were: Benefit Improved awareness and understanding of the total remuneration package Improved business performance Contribute to increased employee satisfaction as a factor of improved recruitment and retention Improve efficiency through the rationalisation of administrative processes and procedures associated with recognition schemes. Reduce the costs of disparate rewards and recognition schemes by combining them onto a single web-based platform. Enhance the value and perception of incentive based rewards Harness the capability of technology and self-service for delivering employee based services Improve an employer s reputation as a leading edge exponent of technology based solutions in the Rewards field Effect on KPIs Providing fairness, honesty and transparency through its products and services. Opinion survey showed an increase from 67% in 2004 to 84% in 2005 Retaining and increasing market-share whilst maintaining confidence amongst its members. Won UNISYS Service Excellence Award in 2004 Emphasing employee importance. Highest satisfaction rating in financial services sector. 1% decrease in turnover saved 1M per annum in recruitment and productivity loss Increasing overall value through Group Efficiency and sustainability targets Preserving financial strength. Saved the Society about 145k per annum in administration costs Extending member value to employees. Led to increased customer satisfaction. Opinion surveys in found very high relative scores in terms of commitment and perceived value of incentive based rewards Embodies Nationwide s objective for improved delivery channels to members Society combined the internet, intranet, HRMS and payroll systems into a seamless workflow process. 24x7 access for employees Maintaining Nationwide s reputation and standing. Won 3 top industry awards in 2006 for HR technology innovation and HR impact. Sunday Times 3rd Best Major Company to Work For

7 Employee Value Proposition Analysis - Recognition Nationwide undertook a unique marketing survey in 2005 to assess employee value preferences of all pay and benefits, linked to commitment factors. Data analysis placed employees in 5 different segments or consumer groups. A further exercise was then undertaken to link the value preferences with cost and utility factors, to arrive at a ROI factor for each pay and benefit attribute. Recognition schemes scored highly across all the different segments, showing positive utility throughout. In particular, the seasonal recognition gift was the third most popular reward attribute after Annual Corporate Bonus and Performance Related Pay. It showed that for a small annual outlay of 50 per capita, it provided the best ROI in contrast to big and beautiful benefits. Similarly, PRIDE recognition and long service awards featured highly. One of the main conclusions from the survey was that a differentiated reward package is important to motivating and engaging employees rather than a one-size fits all approach. Clearly, recognition forms part of that equation. Recognition - The Way Forward Nationwide s reward agenda continues to move on, with recognition maintaining central stage. A whole series of PRIDE events have been run throughout the year, with PRIDE ambassadors established in every business unit to recognise and celebrate business success. Since the recognition online platform was introduced in 2004, it has received over 250,000 hits with gifts awarded to the value of 1.5M. The platform has since been integrated with flexible benefits and total remuneration statements to facilitate a total rewards approach. It has won the accolade of several professional commentators and industry judging panels over the past year. With continuous improvements and innovation, PRIDE recognition will continue to fulfil a central component of Nationwide s total reward philosophy for the foreseeable future. 7