“Without data, you’re just another person with an opinion”
– Edward Deming
One of the frustrating aspects of investing in an employee recognition program is the difficulty in making the connection between the investment and its improved business outcomes and financial returns. Ultimately, every company wants its employees to work together to achieve its vision.
Here are some vision statements you might be familiar with:
- Tesla: To accelerate the world’s transition to sustainable energy.
- Nike: Bring inspiration and innovation to every athlete* in the world. *If you have a body, you are an athlete.
- University Hospitals: Advancing the Science of Health & the Art of Compassion.
- Google: To organize the world’s information and make it universally accessible and useful.
- Southwest Airlines: To become the world’s most loved, most flown, and most profitable airline.
These vision statements are inspirational and provide clues about the team culture of the company, which is where the value of employee recognition comes into focus. Vision statements also validate that different companies want to drive specific cultures. A positive company culture is the secret sauce for successful companies to achieve their vision and provide value to their shareholders.
Entrepreneur Magazine said, “Company culture is more important than ever. It’s not that company culture was ever unimportant, but it’s quickly proving to be a “must-have” rather than a “nice-to-have.” The Strategic CFO explains that culture drives financial results by increasing employee value through these key drivers:
It sites a study that shows the direct impact of enhanced culture to an organization:
Source: The Strategic CFO
|Average Increase for 12 firms with performance enhancing cultures||Average increase for 20 firms without performance enhancing cultures|
|Stock Price Growth||901%||74%|
|Net Income Growth||756%||1%|
A performance-enhancing culture is one critical factor in achieving a company’s vision and financial goals. This culture can consist of behaviors that are embraced as well as behaviors that are discarded. The norms exhibited and rewarded by the leaders of the organization will help establish the unique culture of each company. Ensuring the culture is being championed by the employees versus being merely tolerated, is where employee engagement – how people feel about working for the company – can help.
Leading vs. Lagging Indicators for Employee Engagement
Lagging Indicators are measurements that reflect how something has performed while leading indicators help project how something will perform. Many consider lagging indicators as an output while leading indicators are an input. Additionally, lagging indicators are usually easier to measure but difficult to change, while, leading indicators are harder to measure but provide a connection to the activities, which will change the lagging indicators.
Profits, revenue, costs, and employee engagement are examples of lagging indicators. Additionally, retention, turnover, absenteeism, and recruitment are lagging indicators. Employee engagement is a powerful measure as it directly affects business outcomes. Notice in the chart below how engagement strongly correlates to the benefits of culture identified above.
Employee Engagement Affects Key Business Outcomes
A Gallup study shows work units in the top quartile in employee engagement outperform bottom-quartile units by 10% on customer ratings, 21% in productivity, and 22% in profitability. Work units in the top quartile also saw significantly lower absenteeism (37%), turnover (25% in high-turnover organizations, 65% in low-turnover organizations), and shrinkage (28%) and fewer safety incidents (48%), patient safety incidents (41%), and quality defects (41%).
"When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bristling with prejudices and motivated by pride and vanity."
- Dale Carnegie
To improve engagement, which is a lagging indicator, it’s important to measure the components that make up most employee engagement strategies. Here are a few useful KPIs:
- Employee Net Promoter Scores (NPS) (leading indicator) – this score can be boiled down to a simple question: “How likely is it that you would recommend working at our company to a friend or colleague?” This is generally scored from 0 to 10, with 0 to 6 being detractors and 9-10 being promoters. The formula is NPS = (promoters – detractors) / (total respondents).
- Employee Engagement Surveys (leading or lagging indicator) – depending upon the depth of the survey and nature of the questions, these scores can be used as either leading or lagging indications.
- Registered Recognition Users (leading indicator) – What percentage of employees register for the recognition program within a set period of time after onboarding? Does this percentage increase (or decrease) over time? This measure can be summarized by department, function, or as a mix of manager / non-manager. This measure can work in tandem with the next measure to ensure recognition is growing over time.
- Active Recognition Users (leading indicator) – What percentage of employees have recognized other employees in the past month, quarter, and/or year? This can be measured as an improvement over time or against a goal. This measure can be summarized by department, function, or as a mix of manager / non-manager. This measure directly impacts an employee’s sense of belonging, “In fact,” the report states, “research shows that when people feel like they belong, they are more productive, motivated and engaged and are 3.5 times more likely to contribute to their full, innovative potential.” (Karyn Twaronite. “EY Belonging Barometer Workplace Study.” EY)
- Number of Recognitions (leading and lagging indicator) – How many recognitions were completed during a given time period? This is a leading indicator for engagement but a lagging indicator for adoption of the recognition program. Having multiple recognitions from each employee, is a sign that the habit of recognition is taking hold.
- Absenteeism and Employee Turnover Rate (lagging indicators) – engaged employees are more likely to show up for work and less likely to leave the company. There are two ways to measure these KPIs: improvement over time if the scores are perceived to be too low and need to catch up; and / or target-based if the scores are good and just need to be maintained. The Work Institute shows that 77% of turnover is preventable. (“2018 Retention Report.” Work Institute. 16)
- Glassdoor.com Rating - GlassDoor is a website where millions of people are searching for jobs, salary information, company reviews, and interview questions. Reviews are evaluated and companies are rated 1-5 stars. Watching this rating can provide insight not only to how current employees feel, but how those who have left feel.
The common theme among the leading indicators is that they focus on recognition. There is a direct connection between recognition and employee engagement. Gallup writes, “Workplace recognition motivates, provides a sense of accomplishment and makes employees feel valued for their work. Recognition not only boosts individual employee engagement, but it also has been found to increase productivity and loyalty to the company, leading to higher retention.” (Annamarie Mann, Nate Dvorak. “Employee Recognition: Low Cost, High Impact.” Gallup. June 28, 2016)
From Vision to Realization
Start where the rubber meets the road: recognition. It’s a leading indicator of better engagement and one of the most tangible employee engagement activities that promote higher engagement scores. Engagement strengthens positive feelings and creates an emotional connection to a company. Higher engagement is an indication that employees feel good about and support company culture. Thus, cultivating a strong company culture drives strong financial results and realization of the vision. Measure the right actions, get the right results.
Topics: employee recognition, Return On Investment (ROI), Return On Rewards (ROR), culture