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Human Capital Management

Maximizing Performance Through People

by Donna Oldenburg

With more than 2 million jobs slashed over the past two years, employee retention and recruitment may seem unlikely priorities for many American businesses. But if government projections are accurate, a labor shortfall beginning in 2005 could threaten the survival of companies that fail to prepare for it now.

"Enlightened, forward-thinking companies understand that now is the time to act, not later when they have no choice," says Mike Hadlow, president and CEO of USMotivation, a performance management company in Atlanta. "When the labor situation reverses, companies which have failed to employ comprehensive humancapital management practices, including incentive and recognition programs, will risk losing their best and brightest."

"Human-capital management" has fast become a buzz phrase among a growing number of executives. By focusing on people through effective leadership, communication, recognition, and incentive programs, companies hope to accomplish two goals. First, boost the productivity and morale of workforces demoralized by layoffs and budget cuts. Second, create a workplace that assures the retention and recruitment of top-notch personnel when the economy rebounds.

"Talent management during crisis times is critical," says Sharon Taylor, senior vice president, Corporate Human Resources, for Newark, New Jersey-based Prudential Financial. "You need to wrap your arms around the people who will carry you through the tough times and bring you into the future. You also need to create an environment that is attractive to people who may be coming in to join your company in the future."

Companies can’t afford to become complacent about their people in tough times, warns Jim Dittman, president of Dittman Incentive Marketing Corp., a New Brunswick, New Jersey-based performance improvement company. "The notion that people are just ‘happy to have the job’ overlooks the fact that competitors are looking for every edge they can get, which may well start by seducing the best people in your organization. Motivation programs conducted during times that try men’s souls can create bonds that last for years to come. They communicate the message that ‘we think you’re important, we think your contribution is critically important, and we’ll get through this thing together.’ And when they do that, the company and its employees come out on the other side stronger than when they went in."


Motivating Your People

There is no shortage of research to back up claims that something needs to be done to re-energize American workers. "Recent studies indicate that 30 percent to 40 percent of the working population is unhappy in their jobs to the extent they have ‘checked out mentally and emotionally,’" says Joyce Gioia, business futurist and president of the Herman Group, a management consulting firm in Greensboro, North Carolina.

In a study conducted for the Society of Incentive and Travel Executives (SITE) Foundation, 85 percent of employee respondents agreed that their level of motivation definitely has an impact on either the quality or quantity of their work. Yet 59 percent believe their company does not do enough to motivate them.

"Companies experiencing workforce reductions need to be particularly vigilant to ensure every employee is working at an optimal level for maximum productivity," says Rodger Stotz, chair of the SITE Foundation research committee and vice president, global practice leader for Maritz Inc., a performance improvement company in Fenton, Missouri. "Results indicate that employees are very attuned to what their companies are doing, and not doing, to get them to work harder and smarter, and money is not the only variable. Creating a motivating environment for occupational excellence may seem obvious, but this data indicates that companies are under-utilizing this effective management tool," adds Stotz.

An increasing number of companies are stepping up and taking notice of the power of incentive and recognition programs, according to Karen Renk, executive director for both the Incentive Marketing Association (IMA) and the National Association for Employee Recognition (NAER) in Naperville, Illinois. "A recent survey conducted by WorldatWork and NAER found that employee recognition programs increased in 2002 over 2001. According to the 2002 Employee Recognition Survey, 84 percent of the respondents had an employee recognition program in place. This shows that despite a weak economy, organizations understand the importance of keeping their employees happy, productive, and aggressively contributing to the bottom line."

Lorin Young, who is responsible for strategy, planning, and financial management for Nationwide Insurance’s Office of Administration in Columbus, Ohio, insists that a human-capital plan is as vital to a company as a financial plan. "If you’re striving to be a great company, you first have to be a great company to work for. It’s impossible to ask an employee to give a great customer experience if their work experience isn’t like what you want the customers to have."

Nationwide takes great pride in its people management programs, particularly in these turbulent times. "We’re aggressive in looking at what we can do to reduce operating expenses without having to jump to eliminate people to get our expenses down."

For companies that do effectively incorporate human-capital management strategies into their workplace, the bottom-line rewards can be plentiful. An Andersen Consulting survey reveals that programs to retain and reward leading sales, marketing, and customer-service people can give a $40 million lift to the bottom line of a $1 billion business. Companies with a strong link between enterprise strategy and rewards programs are also credited with generating a shareholder return almost 40 percent higher than competitors without such a strategy, according to a study from the Aberdeen Group.

These powerful statistics come as no surprise to Cathy Atkinson, who had the opportunity to witness the power of recognition programs firsthand. Atkinson worked in conjunction with The Bill Sims Company in Columbia, South Carolina, to implement a program at West Valley Nuclear Services in Buffalo, New York. The program, which sought to assure that the facility was meeting new guidelines for energy savings and procurement, targeted 800 employees, from engineers to cafeteria workers. Employees earned awards that ranged from free coffee to gas grills and cruises for their efforts. The result was an incredible $2.2 million in savings and cost avoidances in 18 months.

But the best part, according to Atkinson, was the program’s return on investment. "We paid pennies on the dollar. If you’re looking for a way to save money, get your employees to help you do that. They know the waste in your company better than anyone."

While not every recognition program includes tangible rewards, many experts insist that such awards enhance the program. "Recognition is key, and when coupled with tangible awards you multiply its impact at least five times," says Bill Sims, Jr., president of The Bill Sims Company. Citing Mary Kay Cosmetics’ legendary recognition program as a case in point, Sims adds, "There’s something about human nature that likes that pat of the back from Mary Kay, but also thinks that pink Cadillac is nice, too."

Programs including verbal reassurance with tangible rewards also have a powerful impact on reducing employee turnover, which is estimated to cost as much as 30 percent of an individual’s salary and benefits package. In fact, 60 percent of employees say they would be unlikely to look for another job if assured of a "bright future" by their current employer, according to a study from American Express Incentive Services LLC in Fenton, Missouri.

Holding onto employees really pays off. Even a 5 percent increase in employee retention can result in a 25 percent-to-85 percent increase in profitability, according to the Harvard Business Review article, "Putting the Service- Profit Chain to Work."


Overcoming Reluctance

Despite overwhelming proof that recognition and incentive programs are an effective part of any human capital strategy, why have some companies been reluctant to employ these tools? "I think some companies see recognition programs as a burden. But they are not a burden if welldesigned and well-administered," says Prudential Financial’s Taylor. "They also provide the leadership of the company with valuable information and a means to communicate and connect."

Some companies mistakenly perceive these programs as costly when in fact they provide a tremendous return on investment when designed properly. Incentive programs aimed at individuals increase performance an average of 22 percent; team incentives can increase performance as much as 44 percent, according to the study "Incentives, Motivation and Workplace Performance: Research and Best Practices," conducted for the International Society of Performance Improvement with a grant from the SITE Foundation.

A program need not be glitzy or expensive to achieve dynamic results either, says Vic Anapolle, former operations manager for W.R. Grace & Company’s Atlanta Darex Container Operation. Working with The Bill Sims Company, Anapolle spent a mere $7,500 to target 80 employees in a variety of areas including sales, safety, customer service, attendance, productivity, and standards compliance. Employee awards included everything from coupons for Starbucks to apparel and merchandise. The program resulted in $175,000- $185,000 in savings each year. The operation was also accident-free for a year and a half and received recognition from OSHA as a model compliance site.

Says Anapolle, "Happy employees can really be productive employees. We achieved these results under the threat of cutbacks and slowdowns at the operation." He adds, "Motivated employees will carry you through the poor economic times and will accept what you need to do in tough times, instead of being divisive."

Technology has been instrumental in making recognition and incentive programs affordable and user friendly. "Materials and administration costs, which were once 15 percent to 20 percent of a programs’ cost, are now as low as 3 percent to 7 percent of a program’s cost," according to Mike Arkes, president and CEO of Hinda Incentives, a Chicago-based performance improvement company.

A case in point is an online program that Maynard, Massachusetts-based SalesDriver developed for V-Span, a Philadelphia-based conferencing network services provider. The program allowed managers to create, control, and update their incentive programs online, saving valuable time and money. Russ McFadden, senior vice president of account management for V-Span, was impressed with the program’s ease of use. "You’re not having to lose valuable face time with customers to manage a contest."

Support for the study of humancapital management continues to grow. In fact, The Forum for People Performance Management and Measurement was recently launched at Northwestern University in Evanston, Illinois. The Forum will develop, manage, and distribute an extensive research agenda and provide a better understanding of the financial benefits and methodologies for having optimal customer satisfaction and employee loyalty. "At most companies incentive and recognition programs are implemented in idiosyncratic fashion with no regard to what the company wants to achieve. They’re add-on tactics," says Frank Mulhern, chairman of the Department of Integrated Communications at Northwestern. "But companies that do it well understand that these programs feed into the company’s overall strategic planning." Companies interested in evaluating their own people-performance strategies can take advantage of the Forum’s research services at no charge.


Motivating in Turbulent Times

Even for companies that do comprehend the importance of human-capital management, recognizing and motivating in today’s tumultuous environment call for special considerations. "In many cases it requires companies to get to the things that made them great in the first place," says Richard Gaeta, president of Premier Incentives in Marblehead, Massachusetts. "When times are great, companies tend to lose focus on staff training, customer service standards, and many of those strategies that kept them in the forefront. Keys to motivating today include targeted staff training, rewarding staff for outstanding customer service, encouraging ‘entrepreneurial’ spirit, and implementing comprehensive performance improvement programs that motivate existing staff."

Focusing on behaviors is also critical, according to Louise Anderson, CEO of Anderson Performance Improvement Company. "In years past, it has been the practice of management to base awards strictly on results. In today’s environment, companies find themselves having to reduce staff and ask employees to perform harder than ever before. The real key is to identify top-producing staff who may already be operating at a 120 percent and identify the behaviors that make them successful. By copying these behavior patterns, they will teach by example and other employees will follow and produce increased results."

Companies that fail to get the message that human-capital management is the key to survival will find themselves going the way of the dinosaur, according to the Herman Group’s Gioia. "Companies that do not recognize or provide incentives to their high performers will find their top talent migrating elsewhere as soon as other options are available. Many companies have cut back or eliminated their recognition or incentive programs because they felt they didn’t ‘have to spend the money.’ They mistakenly approached these investments as expenses. Unfortunately, most will not become aware of this grave error until it is way too late."

Donna Oldenburg is the president of Oldenburg Incentive Solutions, a consulting company to the incentive industy. She is also the former publisher of Incentive magazine.