Improving Your Business

It is an unfortunate fact of small business that many owners never recognize the contribution of employees.

This situation often exists in companies still dominated by the original owner or the son of the founder.

In studies undertaken over the years, this lack of recognition has surfaced in many industries.

Many smaller companies, with less than 100 employees, often implode over time due to this tendency by owners to overlook the role that many employees fill within the company structure. When one or two key people leave, through dissatisfaction or being wooed by former employees who have set up competing organizations, often the original firm founders.

In one case, within the model plane industry, a valued employee left, founded a competing company and in the words of one staffer, "is eating the original firm's lunch."

In recent months, new research is demonstrating just how important employee recognition is to many companies.

O.C. Tanner Co., Salt Lake City, polled more than 26,000 employees at all levels in 31 companies in the healthcare industry. These employees were asked to rate their level of agreement with the statement: "My organization recognizes excellence."

The responses, by organization, were grouped into quartiles and compared to profitability measures: return on equity, return on assets, and operating margin.

In even the lowest quartile, there was a 2.4 percent return on equity, and in the top quartile there was an 8.7 percent return. In other words, according to the study's organizers, companies that practice recognition enjoy a return that is more than triple that of companies that do not.

"The reason this research is so important is that for the first time there is real, concrete evidence that recognition does indeed impact the bottom line," says Chester Elton, vice president of Performance Recognition, O.C. Tanner, and co-author of the Carrot business book series. "It's important to consider the statement people were asked to rate - My company recognizes me for excellence - because that word is how great companies separate themselves. They create a culture of performance and excellence, and when it is demonstrated, it is rewarded."

Experts have long argued that employee recognition pays for itself many times over. Many owners scoff at the notion of an "Employee of the Month" parking space. Yet, to many individuals this small sign of recognition is important and leads to better customer service.

Experts also agree that financial incentives are the best form of recognition.

In many cases, however, a simple plaque is enough.

Recently, on a trip to Italy, during a visit with a sales firm there, marketers for a major publishing company were surprised to see a plaque hanging from the wall of a long-time representative.

Turning to the visitors, he fondly remember the day the company president gave it to him, and he continued as a representative despite other lucrative offers through his publishing firm's travails.