REASONS YOU NEED STRATEGIC RECOGNITION

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1 REASONS YOU NEED STRATEGIC RECOGNITION Recognition instinctively seems smart. But how does it impact your business s bottom line? Here are five factors that make a compelling business case for strategic recognition

2 78% Yes Would you work harder if your efforts were better recognized and appreciated? Source: Globoforce MoodTracker Spring 12 5 Reasons You Need Strategic Recognition // 2 22% NO 1 Highly engaged workforces increase shareholder returns. A glance at recent research from groups like Gallup, Hewitt, and Towers Watson shows that highengagement workplaces have: 63% 56% 50% 38% 27% 5.75% 3.44% Difference in shareholder return 7 Higher customer loyalty 8 Higher sales 9 Above average productivity 10 Higher profits 11 Difference in operating margins 12 Difference in net profit margins 13 It s the most compelling argument there is in business: it benefits the bottom line. Strategic recognition drives engagement. Engagement leads to improvements to the top and bottom lines. Time and again, studies prove that companies with highly engaged workforces have increased productivity, customer loyalty, sales, and profits. Take for an example Best Buy, which found that for every 10th of a point boost in employee engagement, stores saw a $100,000 increase in operating income. 1 A Towers Perrin study has indicated that a 15 percent change in employee engagement can boost a company s operating margin by more than 17 percent. 2 Gallup research has consistently shown a strong connection between employee and customer engagement: two important factors in driving company success. 3 So engagement is key. But how do you get it? Recognition is the number one most impactful driver of engagement, says Kevin Sheridan, author of Building a Magnetic Culture. 4 When employees feel recognized in the workplace, they are statistically more likely to be Engaged employees, meaning they will work harder and produce a higher quality result Even the most hard-nosed supervisors should be able to see the value in providing regular and meaningful Recognition since it is indirectly tied to revenue through Engagement. 5 In fact, Towers Watson has reported that companies where managers were effective in recognizing employee performance saw between 20 percent and 60 percent higher engagement levels. 6 Historically, recognition programs have been quite tactical in nature consisting of managers handing out gift cards from a drawer or Years of Service programs that give tenured employees watches or pins. Strategic recognition takes recognition beyond the tactical and integrates it into your business strategies, with measurable results and the ability to align behaviors with organizational values. With its strong impact on engagement, strategic recognition drives business outcomes in a direct and compelling way. To assess your own levels of engagement, consider an employee survey. To increase your levels of engagement, ramp up your employee recognition.

3 CALCULATING TURNOVER COSTS Company with 10,000 Employees Entry Level Average Annual Salaries $30K $70K 20% 10% $150K Cost to Replace of salary) $22.5K 70% Midmgmt $52.5K 2 We profiled a sample company of 10,000 employees with a very conservative 11% annual turnover rate and an average cost to replace of 75%. Senior mgmt $112.5K Annual Loss of Talent (@11% turnover) Recognized employees are less likely to jump ship. Unwanted turnover is a pervasive and costly liability for any organization. A while back, Coca-Cola estimated that it costs $3, to replace one minimum wage employee. 14 In fact, out of 17 organizations who calculated that cost, SHRM had the lowest estimate, still up at $3,500 per employee. 15 The University of Arizona Medical Center conducted an eyeopening study in 2009 setting the cost of replacing a generalist at $115,554; replacing a subspecialist at $286,503; and a surgical subspecialist at $587, When we factor in time and productivity lost to vacancies and onboarding, we begin to see just how significant these hidden costs really are. In fact, the costs of turnover are usually estimated at percent of the annual salary of entry-level employees, 150 percent of middle level employees, and up to 400 percent for specialized, high-level employees. 17 With U.S. national average turnover at 38 percent, according to the U.S. Dept. of Labor, (and even award-winning employers at turnover rates of 11 percent, according to the APA) that s a significant bite out of the corporate apple. 18 Need an example? Check out the sidebar. You read right. An 11 percent turnover would cost that company $41.3 million a year. Even if all of your employees are the entry-level $8/hr version, you still are incurring losses of $3+ million annually. And this doesn t even JOB DESCRIPTION/ CATEGORY TURNOVER COST as % of Annual Salary Entry Level, Non Skilled 30-50% Service/Production Workers 40-70% Skilled Hourly % Clerical/Administrative 50-80% Professional % Technical % Engineers % Specialists % Supervisors/Team Leaders % Middle Managers % Source: Jack Phillips Center for Research begin to account for the brain drain and risks associated with losing valuable tribal knowledge and talent. Research overwhelmingly shows that recognized employees are more likely to stick with you. As the Wall Street Journal recently observed: Awards, recognition and praise might just be the single most cost-effective way to maintain a happy, productive work force. 19 Recognized and appreciated employees stay the course. 5 Reasons You Need Strategic Recognition // people people people $17.3 MM $11.6 MM $12.4 MM Determine your own turnover rates and annual turnover costs. Compare that against the investment in a strategic recognition program. WHO S LOOKING FOR A NEW JOB? of those who feel appreciated $41.3MM in bottom line turnover costs 20% 60% of those who do not feel appreciated

4 3 Not all engagement is good engagement. Engagement is good. Lack of engagement is bad. Simple, right? Wrong. There are two types of engagement. One is transactional (or situational), when employees are happily focused on a job or task they like. The other is emotional, where employees have made strong ties to their bosses, coworkers and company values. Like cholesterol, you have to make sure you have less of the first type of bad engagement and more of the second type of good engagement. Strategic recognition drives that. John Fleming of Gallup, author of Human Sigma, has linked emotional engagement to satisfaction and to desirable financial and operational outcomes. 20 According to a recent study published by the Chartered Institute of Personnel and Development (CIPD) and Kingston University Business School s Centre for Research in Employment, Skills and Society (CRESS), high levels of the transactional form of engagement were found to: Be potentially damaging for both individuals and their organizations Reflect higher levels of stress and difficulties in achieving a work-life balance Emotional engagement has the opposite effect. It s driven by a desire on the part of employees to do more for the organization than is normally expected, the study said, and in return they receive more in terms of a greater and more fulfilling psychological contract. 21 That means emotionally engaged employees are bringing employee energy to the table in a sustainable, positive way. How does this relate to recognition? Most traditional reward programs are unemotional and transactional with incentive bonuses or cash rewards, isolated top-down award-giving, or simple milestone catalog gifts. Strategic recognition, on the other hand, is social and emotional with public appreciation and awards that are tied to corporate values, witnessed and congratulated by peers and that involve personal choice in reward type. Good recognition drives good engagement. 5 Reasons You Need Strategic Recognition // 4 Examine your culture to determine the type of engagement you re inspiring. Consider strategic recognition that encourages emotional, rather than transactional engagement. TRANSACTIONALLY ENGAGED EMPLOYEES EMOTIONALLY ENGAGED EMPLOYEES More likely to display undesirable behavior. More likely to react negatively to the line manager relationship Attached to their work. More likely to have high levels of well-being Score lower on all performance dimensions Not committed to the job or the organization Less likely to experience burnout or work family conflict. More likely to have high task performance & levels of citizenship Less likely to respond to a supportive environment Willing to jump ship if a better offer appears. Desire to do more for & get more in return from their company. Willing to stay the course. Do only what is required or expected, as long as promised rewards are forthcoming Less likely to indulge in undesirable behavior which might damage the organization.

5 TRADITIONAL, TACTICAL RECOGNITION Myriad, decentralized programs with no centralized reporting Unilateral, top-down recognition Trash & Trinket awards STRATEGIC, SOCIAL RECOGNITION Global programs with complete tracking and reporting Peer-to-peer recognition Driven by culture and values +4.6% Data Proficient Organizations STOCK VALUE % CHANGE LAST 12 MONTHS Data Deficient Organizations -3.0% 4 Crowdsourcing improves talent management and metrics. Recognition on a schedule (e.g. Years of Service programs) Limited, elite circle of winners Culture and talent data not made available Spontaneous recognition in response to behavior Broad, inclusive circle of winners Meaningful rewards chosen by employees You ve just hired a key new employee. Great! But once the on boarding process is complete, the process of talent management is just beginning. If you do it well, you have a motivated, engaged employee who contributes to the bottom line of the organization. If you phone it in (or screw it up), you ll be conducting another exit interview. Not so great. Talent management cannot be ignored. Successful companies don t just hire an employee and forget him/her except for a halfhearted annual review. According to SHRM, in leading companies, talent management is a primary driver for organizational success, and, indeed, 76 percent of companies already consider talent management a top priority. 22 A Deloitte study showed that the most profitable companies are ones who align people practices to business strategy and establish a clear succession plan across your workforce. 23 The two simple keys to effective talent management are as follows: 1. Identify, develop and grow talent 2. Recognize and reward positive behavior Employees who are cultivated and appreciated are employees who become more satisfied, more effective and apply more employee energy to your business. But sadly, good talent management has long been considered a soft skill, because human assets are so intangible and difficult to measure. Performance reviews are fatally flawed, succession planning is haphazard and subjective, and appreciation inconsistent and undervalued. 24 According to WorldatWork, only 17 percent of organizations even know all of their top-performing employees or are looking to develop them for future roles. 25 Yet for all that, the Brookings Institution notes that 85 percent of a company s market value is now calculated on just such intangible assets: knowledge, reputation and human talent. It is critical to be able to identify your positive outliers and cultivate them. There is also a real link between how well we gather and use our talent intelligence, and financial performance. According to a recent survey by HCI/Taleo: Organizations that rated themselves proficient in workforce data analysis were far more likely [ ] to financially outperform those who rated themselves as deficient at workforce data analysis. 26 Strategic recognition provides the data required to gain deep insights into your culture, and not only measure results but manage them. Tools like Executive Insight and Talent Maps quantify a previously very soft set of variables. They let you dive deep into how your organization works, visualizing the ties among employees and workgroups, and identify key performers and influencers for the purposes of performance management, succession planning and retention. They also provide you with an effective tool for cultivating, engaging, appreciating and measuring your talent. 5 Reasons You Need Strategic Recognition // 5 HCI/Taleo Evaluate the efficiency and accuracy of your current performance management systems. Implement a recognition program and use the resulting recognition data to analyze how employees and departments interact, where talent outliers are, and how employees engage with culture and values.

6 5 Company values are not something employees recite, but something they practice. 5 Reasons You Need Strategic Recognition // 6 High-performing companies align people management practices to corporate culture, business strategy and long-term objectives. 27 Research from Deloitte has shown that managers of higher profitability companies were 12 Companies with strong positive core vision percent more likely to have a strong focus and core values have outperformed the on core values and general stock market by a factor of corporate culture since Jim Collins, Built to Last Best-selling business writer Jim Collins has found that having core values is essential to enduring business greatness: The point is not what core values you have, he wrote, but that you have core values at all, that you know what they are, that you build them explicitly into the organization, and that you preserve them over time. In their book, Built to Last, Collins and Jerry Porras found that Companies with strong positive core vision and core values have outperformed the general stock market by a factor of 12 since Likewise, in a recent study, the research firm Modern Survey found that having clear values known and understood by Employees who know and understand their company values are 26x more likely to be fully engaged. -MODERN SURVEY employees throughout [an] organization is key to making engagement possible. Without clear values, it is nearly impossible to engage employees. In other words, company values are not just an exercise for executives. Good, clear, practicable values are an intrinsic pillar of engagement and organizational success. Because strategic recognition is aligned directly to company values, with awards and recognition models that map back specifically to each value, it brings those guiding ideals down off the wall and integrates them into employees everyday thoughts and actions. In this way, strategic recognition brings culture alive in employees minds as a practice, rather than as an abstract concept. Company values should be lived, not just displayed. Determine if you have aligned company values with corporate culture in way that resonates with employees. Make those company values directly actionable. The takeaway? Any of these five factors makes a compelling business case for strategic recognition. Together, they offer an exponential return on investment that directly impacts the bottom line of your business.

7 135 COUNTRIES 25M+ REWARD OPTIONS 15+% INCREASES IN EMPLOYEE ENGAGEMENT ABOUT GLOBOFORCE Globoforce has been helping companies drive business results through strategic recognition programs since Our clients get results dramatic improvements in employee engagement, increased employee retention and measurable adoption of corporate values. SOURCES 1-3 MONTHS TO FULL ADOPTION 100% PURE SAAS 1 CFO Magazine, 2007 & Harvard Business Review, Gallup, Engaged Employees Inspire Company Innovation, Gallup Business Journal, 4 Interview, Kevin Sheridan, May 23, Kevin Sheridan, Building a Magnetic Culture, Towers Perrin, Turbocharging Employee Engagement, assets/pdf/629/manager-recognition_part1_wp_ pdf 7 Hewitt Associates, Hewitt analysis shows steady decline in global employee engagement levels, press release, July 29, Gallup, Q12 Meta Analysis, gallup.com/private/resources/q12meta-analysis_ Flyer_GEN_08%2008_BP.pdf 9 Gallup, Q12 Meta Analysis 10 Towers Perrin, Turbocharging Employee Engagement 11 Towers Perrin, Turbocharging Employee Engagement 12 Gallup, Q12 Meta Analysis 13 Gallup, Q12 Meta Analysis 14 New Ideas for Retaining Store-Level Employees, Coca-Cola Retailing Research Council, January Source: SHRM. See: Marlene Chism, Stop Workplace Drama: Train Your Team to Have No Complaints, No Excuses, and No Regrets 16 Schloss EP, Flanagan DM, Culler CL, Wright AL, Some hidden costs of faculty turnover in clinical departments in one academic medical center Source: Jack Phillips Center for Research. See: calculating-employee-turnover-cost.html 18 workers-stressed.aspx where-employee-engagement-happens.aspx 21 CIPD, Emotional or transactional engagement does it matter?, Documents/0606RQuartpdf.pdf 23 Browse-by-Content-Type/deloitte-review/2472dacb2 bea9210vgnvcm100000ba42f00arcrd.htm 24 Recognition Council 2009, The Time for Employee Recognition and Rewards Programs Is Now 25 World at Work, Global Survey Reveals Companies Still Fail to Communicate Strategy, Nurture Top Performers, or Accurately Align Pay for Performance, Global Talent Management: How Leading Multinationals Build and Sustain their Talent Pipeline, INSEAD Working Paper, Browse-by-Content-Type/deloitte-review/2472dacb2 bea9210vgnvcm100000ba42f00arcrd.htm 29 Collins, Jim, Built to Last: Successful Habits of Visionary Companies, 2004 Let Globoforce help you make the case for recognition in your company. VISIT OUR SITE: globoforce.com» READ OUR BLOG: globoforce.com/globoblog» US: info@globoforce.com» CALL US: GFORCE Globoforce (Europe) 21 Beckett Way Park West Business Park Dublin 12, Ireland t // f // e // info@globoforce.com Globoforce (North America) 144 Turnpike Road Suite 310 Southborough, MA USA t // f // e // info@globoforce.com Founded in 1999, Globoforce is the world s leading provider of employee recognition solutions. Through its social, mobile, and global technology, Globoforce helps HR and business leaders elevate employee engagement, increase employee retention, manage company culture, and discover actionable insight about their talent. Today, employees across the world are living their company values and achieving peak performance through the SaaS-based Globoforce platform. A private corporation, Globoforce is co-headquartered in Southborough, Massachusetts, and Dublin, Ireland Globoforce Limited. All rights reserved.