Using Recognition to Drive Performance

Chester Elton: Well, you know, we talk about the 'carrot versus the stick'. And, as we looked at people in the workplace, particularly in The Carrot Principle where we surveyed over 230,000 people, it's important because, with the declining number of people that are qualified to come to work, you know, birth rates being down, particularly here in Europe, and the similar situations actually all over Asia where you wouldn't think it would be a problem, and certainly North America, that when you find good employees, you really want to keep them. You know there's a lot of competition for good talent out there, and you can't pay 50% more than your competition. I mean, you know, you'd run out of money. So the cards that you have to play are to create a workplace environment that's conducive to attract great talent and to keep them, and we call that building a 'Carrot Culture' or a culture of recognition where people, you know, they wake up in the morning, they feel good about their jobs, they feel good about their bosses, they're ready to come in early, put in a good day's work and hit it hard.

Rachel Salaman: That sounds just a lot like commonsense. Why is it that people don't do that already?

Chester Elton: Well it is common sense, you know. We have a wonderful presentation we do called: Everything I learned about recognition I learned from my mother, and it is true, you know, and remember to say "Thank you," you know, clean up after you, and so on. What's happened is, you know, business goes in cycles and, for a long time, it was 'slash and burn,' you know, mergers, acquisitions, cut people back, cut people back, and it was all about that. Now, however, it really has changed. The difference is, is because of all the slash and burn, people are doing two and three jobs. They're still having to do more with less, and unfortunately I think we've kind of engineered out of the workplace common courtesies like saying thank you, writing a note, pulling a team together and showing genuine appreciation.

Rachel Salaman: So how did you end up writing this book?

Chester Elton: That's a great question. I sold recognition plans for ten years and we had all this great data. I work for the OC Tanner Company. We celebrated actually 80 years of business this year, so we've got a long history. And we had all this great data and we had all these great best practices and we'd never published it. So I went to our CEO and I said, you know, "Really, companies that are best in class publish and share this information, and we should do it, not in articles, but in a book." So that led to our first book, was called Managing with Carrots and it did quite well. It was the 'why' you should do it. Then we wrote The 24-Carrot Manager, which was 'how' to do it. Then our publisher came and said, "Look, give us an idea a day," so we did A Carrot a Day: it's a perpetual calendar: 365 great ideas. Then we wrote a fun book called The Invisible Employee, one of these fable stories about what happens when people are recognized or not. And then, what we finally did, is said, "Look, let's take it from the fun and allegorical to the data driven," and that's The Carrot Principle. And we've had great fun. These five books have been translated into 20 languages; we've sold over 600,000 copies. And Adrian Gostick, my co-author and I, we literally traveled the world, which is a wonderful experience, because what you find out is that, whether you're in Kuala Lumpur in Malaysia or even Brussels, or you're in London or you're in, you know, the backwaters of Idaho, you know, in the US, thank you is always good business in whatever language. And so that was kind of the birth of the book and we've been delighted to see how it's been embraced, literally all over the world.

Rachel Salaman: So in this context, what kind of form can recognition take?

Chester Elton: Oh, excellent question. In the book we talk about there are certain building blocks when you put together a recognition scheme or a recognition plan. One is what we call 'day to day recognition' where you really build a culture, and these are very simple things in practical application. It's a handwritten thank you note, I'm a big fan of, as opposed to a blast email which, you know, no-one ever saves; but, you know, a handwritten note that perhaps goes to their home. Verbal praise, you know, we talk about – it's a great expression, "There are no 'buts' in recognition." And if you're going to compliment someone, leave the 'but' out. You know, if you say, "I really appreciate you staying late, you did a great job, we were short-staffed, and the way you took care of that client kept the store open," whatever it might have been. "But, had you followed procedure you wouldn't have had to stay late." Well, it goes from being a recognition moment to being a criticism. There's an expression that, "Everything before the 'but' doesn't matter." Right? And so that's, you know, we talk about verbal praise has to be positive and stay positive. So you've got your day-to-day recognition. Secondly, your career achievements, and this is very much a new trend with long service awards or career awards. You know, in a lot of companies, they don't give any awards until maybe five, ten years, and some don't even do it until 25. I'm a big believer that recognition is about messaging, and the message when you reward someone for their years of service is you're recognizing their loyalty; you're, you know, you're appreciating the fact they're staying with you. Well, retention is such a big issue now for most companies. When you think about it, people, if they've been with you for 25 years they're with you, you know, or even five years or ten years. Where you really want to concentrate is in that first year or that first day. An expression called 'Onboarding' is becoming very popular. "How do I make that good first impression?" 4%, and these are just numbers and no-one will remember them but, you know, it's our job so we collect them, but 4% of employees decide on day one whether they're going to stay or not. I mean, you've got 4% of your new hires step in that first day, look around and go, "Nah." You know, I was talking to a gentleman at Hewitt just yesterday. He says, "I had an assistant start and actually didn't make it back from lunch." Half a day is all. Well I don't know what happened there but, you know, if you're more welcoming and you're prepared, it's something like 70% or 65% decide in the first three months whether they're going to stay. So, as employers, you know, five, ten, 15, 20, those kinds of awards I think are very important to value people for their loyalty, but what are you doing on day one and the first 30 days, first 90 days? Then we talk about 'above and beyond' recognition when people really – the third block, so to speak, when people really go above and beyond. Do you do anything? I'm willing to bet in your career, you know, you've done something above and beyond and no-one's said anything, and I doubt you were really willing to hit it hard again the next day. There are two reasons why you do above and beyond actually: one is to retain that top talent and, secondly, is that that probably has the biggest impact on your bottom line. These are people that have established new processes, they've come up with the next great idea, and you really want to keep them, so it impacts your bottom line and it retains your top talent. The fourth block is really 'events' you celebrate, you know, teams. You know, winners celebrate. More and more people want to be associated with winning organizations. You know, The Times Top 100, the Fortune 100, BestPlaces, right, those kinds of things, and one of the characteristics of winners is that they celebrate. So, you know, we don't do enough of that in the workplace. So, if you look at it from day-to-day recognition, career achievement, above and beyond and events, you've pretty much rounded it out, and then it comes down to the messaging, where you – what do you want to say when you present those awards?

Rachel Salaman: You mentioned a little bit there how the recognition can manifest itself; could you outline what types of recognition suit what situations?

Chester Elton: Oh, excellent question. In fact, in our book, there's a chapter with like 125 suggestions, which I think is a great place to start. But, yeah, it's very important that the award reflect the effort. For example, you know, if you've stayed late and I give you a voucher for dinner or whatnot, I mean that might be appropriate if you're short staffed, and so on, but if you, you know, pull the CEO from a burning building, that same voucher just doesn't – it doesn't translate, if you know what I mean? So we talk about encouraging effort and rewarding results. So the encouraging effort is all the smaller things, the verbal praise, the pat on the back, "The coffee and tea is on me today," and maybe ordering in pizza, whatever it might be; little things along the way. But when you get superior results, make sure the award is commensurate with the effort. You know, if you've saved the company a million dollars that's a big deal, and so we talk about, "What are your measurable and do people know what to expect?" One of the things we've done, which was a lot of fun, is we've actually crafted a little recognition survey, and you ask the employee what do they value? What would they like to be rewarded with? For example, I just went to the Chelsea match last week – or last night actually. It was really good fun, and I love sport, so that's an appropriate gift for me. For someone else it might be tickets to the theater or to the opera, but unless you ask, you don't know. And it's a very common mistake that managers make, you know, they'll send a bottle of champagne to a devout Muslim family and it's just, you know, it goes from being appreciative to being embarrassing, so ask. But very good question and we say, look, you know, encourage effort but reward the results.

Rachel Salaman: So what evidence is there that recognition really helps the bottom line?

Chester Elton: Well, this is why I think our book became very popular with, you know, the financial people because they don't really care about if your people feel good; they want to know did it increase the value of your company? And early on in the book, we took a look at companies that recognized excellence. We found 31 different companies actually, 26,000 surveys where that was the case, and we divided it up in the classic four quartiles: companies that were high recognizers of excellence to those that were low, and we wanted to look at return on equity, return on assets, and operating margins, which isn't a category that a lot of companies use and yet it's still out there. What we found in return on assets and return on equity, the difference was three to one, which is pretty dramatic. We would have settled for a five or 10% increase; most CFOs would. A three times difference is pretty dramatic, and return on – or operating margin was almost seven to one, so this idea that it impacted the bottom line. Not only that we found that in case studies we did with KPMG and Avis Budget Rental Car and so on, that employees that were recognized were twice as likely to stay as employees that didn't, so, when you look at your bottom line turnover, it's hugely expensive. You've got to hire, you've got to train, you know, you lose relationships and so on, and so that to the bottom line effect. Bruce Pfau, who is the Executive Vice Chair of HR for KPMG, said, "1% of turnover in our organization can be ten to 15 million dollars to our bottom line," I mean it's a huge number. So, in the turnover numbers alone, saving can happen. I'll tell you what was very interesting though we were looking at different indicators on "Are you more likely to stay? Are you likely to be completely satisfied with your job?" And our assumption with the data in employee attitudes, was that the more they were recognized, the better those numbers would be, and in fact that was the case. There was a nice progression. The more you were recognized, the more likely you were to stay. The more you were recognized, the more likely you were to be completely satisfied with your job. But more and more people are asking about 'engagement', sort of the Holy Grail, you know, if I can borrow from Monty Python, and so how do you get engagement? Well we thought we would see the same progression, and we were quite surprised actually that you only got superior engagement in the fourth quartile. You had to be a high user of recognition to really get – and it was in the 70 percentile. In the third quartile, which is you're getting, you know, a fair amount but not the top, it was only about 16-17%. So what it told us is that managers need to have a plan and they need to follow a plan and they need to be very consistent in how they give recognition. And that was one of the big 'AhHa's of the book and the research.

Rachel Salaman: So people will want to know how do they write that plan, how do they plan to recognize their employees?

Chester Elton: Yes, well I think that comes back to the basic four: what are you doing day-to-day? You know, managers, we have actually some very good training around that; it's called Carrot a Day training. Apple a day, Carrot a day, you see the analogy. Anyway, you know, are you giving enough communication on a daily basis for people to be engaged? I'll tell you another interesting thing that happened. We found that managers that did recognize a lot got very high scores in trust as well. And so, as you're looking to build trust in your organization, you can pull the recognition lever and that's a great help. But handwritten thank you notes, verbal praise; have things available, talk to your employees how do they want to celebrate, public or private? Do they want team recognition? Do they want individual recognition? And I think you need to start gathering that kind of information so that when you give whatever it is, you know, whether it be, you know, the shooting star lapel pin or, you know, a flat screen TV, whatever it might be, that it's appropriate.

The other thing we found is, if you have a chance to let the employees select from an array of awards, that also goes up. So there are a lot of things you can do and I'd encourage you to read the book to find out more.

Rachel Salaman: How does the Carrot Principle affect leadership?

Chester Elton: Well, great question. As we broke out managers that were high recognizers, we found that four basic leadership traits – we call them the basic four – really popped up above the norm. The first one is that they were better goal setters, which, you know, when you think about executing the company strategy, particularly at that mid and lower level management strata, is very, very important. Secondly, they were better communicators, and you can see how, when you pull someone up and you present them with an award, you've communicated in a very powerful way what you appreciate. Thirdly, and it was the number one characteristic correlater, was trust, and I don't know if you've ever been in a workplace where you didn't trust your manager, but it doesn't tend to be a great place to work. Trusting in the workplace has become critical. I mean, if you don't trust your manager you're not going to trust the brand, you're not going to go the extra mile. And then lastly, the one that I like the most is that they also are great at holding people accountable. Again, recognition has been seen as the softer side of management for so long and yet, when you look at managers that are high recognizers, four basic building blocks of great management skills: goal setting, communication, trust and holding people accountable, show up at much higher levels than not. So, again, it's gone from being a 'nice to have' in leadership, in knowing how to recognize and appreciate, to really a 'must have' if you're going to create that Carrot culture where people want to come and perform and stay with the organization.

Rachel Salaman: Is there anything more to building the Carrot culture than simply implementing recognition tools?

Chester Elton: Well yes, I mean it's not the silver bullet, you know. I'd never say, "Look, all you've got to do is start writing little thank you notes and you'll be hugely profitable," you know. You have to make sure that you've got the other basics right. I mean, you've got to be paying fairly, you've got to create a safe environment, you know, free from prejudice and those kinds of things. So, you know, I'm not going to say, "Look, put in a recognition scheme, pay your people 20% less," you know, that's simply ridiculous. What I'm saying is, "If people show up today, your compensation, your benefits package, all those kinds of things was good enough to get them in the door. Now, what are you doing to really engage their hearts and minds? And, if you've got the basics down, then recognition can really accelerate those results." And we talk about recognition really being the accelerator, and it really does. It's that piece of the puzzle where, if you've got the basics right, can really take you to the next level, and the results on the financial and the results in employee satisfaction. And one other thing that I want to point out is managers that scored high in those basic four characteristics also had the highest scores in customer satisfaction, in employee loyalty and engagement, and in profitability. So, again, it's not just to be nice or make your mother proud of you, although I'm sure she would be. It's all about good business and staying in business and growing your business, and that's what recognition does for you: "The power of the Carrot," we say.

Rachel Salaman: So if you're a manager who's never done anything like this before, how do you actually start?

Chester Elton: Well, you know, it always helps if you've got the support of upper management, first off, but if you don't, I would suggest in sitting your team down and literally talk about it. Ask about, you know, "What kind of team do we want to build? What are our goals? How can we get there?" And say, "Great, now listen, when we succeed how should we celebrate? And when should we celebrate?" You know, I find managers are very interesting. You know, in business we use a lot of sports analogies, just because they work, you know. You say, "Should we celebrate only when we hit the final goal?" And you say, "Well, that's one way of looking at it and a lot of managers do that. Or should we have little celebrations along the way?" You say, "Well, if you were at a sporting event, would you save all the cheering until you knew the final result?" Well, no, clearly you cheer all the good plays along the way. In fact, when you have more of your people cheering, you call that the 'Home Field Advantage'. You know, if you're going to play a championship match you're going to play it in your stadium because you've got your fans cheering you on. It's much the same in business, so let's cheer along the way. Let's find little markers "When we hit this goal we'll celebrate and this goal we'll celebrate; when we close this deal, and every time we win a new account let's do something fun," you know, and so you sit down with your team and you say, "Let's craft this scheme together." And then the most important thing for the manager is to be very consistent and keep your promises. If you've promised a celebration, celebrate. People want to rely on their manager, so I would say get together as a team, put a plan together, and then, you know, there are a lot of suggestions in the book, but then really, as a manager, make sure you're doing a lot of little things that, day-to-day, really does help people stay engaged. The verbal praise, the little notes, the pat on the back, the little team models where you pull someone out and you celebrate that behavior, all very key and very important.

Rachel Salaman: From your experience of seeing this work in practice, can you give us an example of a good case study?

Chester Elton: Sure. In the book actually we have several. We have Avis Budget Rental Car; we have KPMG; we've got DHL, which I think is a very good one. What these companies have done is they've created a company-wide strategy and it's online, and so it's trackable and, see, this is where, if you've got the data, you can do all kinds of interesting things. For example, it was Avis that found in their certain group that, if they recognized their managers – or the managers that were the highest users of recognition also had the lowest turnover. KPMG was able to find out that one incident of recognition in the calendar year caused the employee to be twice as likely to stay, so, you know, these kinds of things if you find a way to track them, becomes very, very powerful. What do you want to emphasize? And again that specificity, make sure that you've got – reinforced the company values, you know. Is it on time delivery like at DHL? Is it customer service like at Avis? Is it zero defects? Whatever it might be, that's what you focus on. And if you can track it, it becomes very powerful as a way to evaluate your managers and to evaluate success.

Rachel Salaman: Now some people may have a few reservations about adopting this method. For instance, is it possible to be a firm authoritative manager and also give out treats? Isn't that a contradiction?

Chester Elton: No, I mean, not at all. If you think back in your career, some of your toughest managers may also be some of the managers that you had the most respect for. Now, you had the respect for them because they were tough, not because they could be tough. They didn't beat you up because they could. They brought you in and you talked about how you could do things better. They made you better. The only reason they could do that is because they trusted you. Remember, when we looked at the data, the managers with the highest trust levels were also in the category of very high recognizers. In fact, the PhDs that we had a look at the data said it would be almost impossible to be considered in that category a 'high trusting, high communicating' manager, without also having a high recognition score, so managers that tend to be tough also tend to be a lot of fun. You work hard, you play hard. There's not a contradiction there really at all.

Rachel Salaman: What about if you haven't got the budget to recognize employees?

Chester Elton: Yeah, I mean, that always comes up and I think it's such a lame excuse really, you know, "I don't have the money." Well, how much does it cost you to write a thank you note? How much does it really cost for coffee and doughnuts? You know, how much does it really cost to take ten minutes and bring the team together and single out people? I mean, you can print a certificate, you can – some of the best awards I've seen in the workplace have been like a stuffed toy that passes around or, you know, whatever it might be, so there are ways to do it that don't cost a lot. I always tell organizations, "Well, if you don't have a budget for recognition, what's your budget for recruiting and replacing?" It's huge. I mean, say, well I don't have time to say thank you to the employee, but I do have time to replace him if he walks out the door. I don't have time to say thank you, but if she leaves, I've got to take my time and stay late to pick up her work, so, you know, it's a bit of a lame excuse. We call it, you know, 'vegophobia' or, you know, being afraid to do it. And the biggest one is, "I don't have a budget," which there's no excuse there. Secondly is, "I don't have time. I'm doing more with less." And, again, I come back to the fact that you can make an award presentation in less than two minutes. Now verbal praise for an employee takes ten or 15 seconds, I mean, you make it a habit and you do it. Many of the managers that I work with will have a stack of thank you notes. At the beginning of every day or the end of every day, whenever they find most appropriate, they'll write two or three thank you notes a day, and that's three or four minutes, tops. And they have huge results, so those are the two biggest ones. The other one I love is when they say, "Well, if I do it too often it'll become trite. You can say thank you too much." And I said really, you know, this one gentleman I was talking to, I said, "Are you married?" He said, "Yeah." I said, "Are you happily married?" He said, "Yeah." I said, "For how long?" He said, "About 20 years." I said, "Great. How often do you tell your wife that you love her?" He goes, "Oh, every day." I go, "Isn't that interesting? And it must become trite." He goes, "Well, no, but that's my wife." I said, "Yes, but take that to the workplace. 'I love you' in your personal life is 'thank you' in the workplace." Of course don't get that mixed up. That can cause a lot of problems, you know, with Human Resources, but the difference in the workplace is this specificity. Is you just can't say, "Love you, love you, love you, or thank You, thank you, thank you, thank you." You have say "Thank you for staying late and getting the reports in on time. Thank you for taking the extra time with that upset customer and making sure all the details were ironed out." You see what I'm saying. So we talk about frequency, specificity, and then be timely; do it right away. Don't wait until the end of the quarter, the end of the year. Important things get done now and it conveys that it's valuable. "I did it now, I didn't wait."

Rachel Salaman: Now some people worry that recognition can cause jealousy in the team and create a bad vibe. What do you say to that?

Chester Elton: It can, if you're not very specific in why you're doing it. If you call up an employee and you're very general in your praise, and you give them a £500 voucher, or whatever it may be, they'll go, "Well, wait a minute, what did they actually do?" And the feeling is, as well, you know, if I ingratiated myself to my boss like she did, I'd be getting those as well, but I won't stoop to that, you know, and it does it causes friction. The specificity takes all that out, and your co-workers know whether you've done it or not. So if, when they come up, you say, "Listen, we had all kinds of problems with the computer system; we all suffered on that. It was Jane that really got with the vendor, worked the extra hours, found the glitches, and now we can all get online and the system is faster, it's secure, and for her great work on that project, we're going to reward her with" whatever it is. A certificate, keys to a small European sports car, you know, nothing says, "I love you," quite like Porsche, you know, but the point is, is that, if you're specific, people get it and there are no jealousies. In fact, the reverse is true. They'll say, "She deserved it. It's about time they recognized some of us for all the hard work," and it becomes more public and it becomes more of a celebration. But a great question, because people talk about the 'darker side of recognition' and it only becomes the darker side if you don't do it right.

Rachel Salaman: So are there any other pitfalls that managers could fall into?

Chester Elton: Right, well don't be inconsistent, you know, many managers, if they've got the time, if they've got the budget, if they're inclined, which is never first thing Monday morning, you know, before they've had five or six of their favorite coffees. Get a plan, stick to the plan, be very consistent. Communicate very clearly what the plan is, so that there's an expectation. You know, the reason that actors strive so hard for the Oscar, the Academy Award, is because they know it's there and they know what they have to do to get there. You know, in the Olympics, you know what you have to do to get the gold medal. It's not all of a sudden "I ran really fast" they go, "Oh, you know, hey, here's a gold medal." No, there's a competition, there's a process, and be very clear about that so that when you hit those goals there's no mystery, this is how we're going to celebrate, but there's consistency. I can't overemphasize that. If you're going to start writing thank you notes, stick with it. If you're going to put together a recognition scheme, stick with it, you know, over the long haul because if you don't, it becomes the flavor of the month and nobody really knows what's going to happen and it becomes very inconsistent and people disengage immediately, "I've seen this before, he'll change his mind, don't you worry." So consistency, stick to it, you know, and make sure that you're sincere. That specificity helps managers. Well I'm not all warm and fuzzy. Well, specificity doesn't have to be warm and fuzzy; it needs to be factual and accurate, and most managers can do that.

Rachel Salaman: Chester Elton, thank you very much for joining us.

Chester Elton: Great. Well, one last thing. I would be remiss if I didn't say that our book The Carrot Principle is available at fine bookstores everywhere. And, if you want some of this good data, by the way, these White Papers, feel free to visit us at our website www.carrots.com. There's a manager tab Research. A lot of free downloads, and we also have a monthly magazine that goes out. It's all free of charge, just to give you some ideas and helps along the way, so great resources for you there. But thank you for having me on your show and call me again any time.

Rachel Salaman: The irrepressible Chester Elton talking to me in London. That website again is www.carrots.com. I'll be back next month with another Expert Interview, so do join me then. Goodbye.