Using Recognition to Build Compliance (And Avoid Risk)

April 16, 2013 Darcy Jacobsen

One of the less fun parts of our HR job is our role in helping the organization avoid liability and stay compliant. Why? Because people are the least predictable, and therefore most risky, variable in any organization. It also tends to be a thankless task,  because compliance is one of those things that no one notices when it goes right, and EVERYONE notices when it goes horribly wrong.

As we juggle tax and government regulations, legal liability, best practices, diversity, inclusion, and various other compliance issues it is easy to think that a new program like employee recognition might just add to your headaches. But in fact, when done properly, recognition will not only NOT add to your risk, it can actually help you to REDUCE it.

To that end, here are a few important compliance issues and ways in which a formal recognition program can significantly help you to mitigate liability and stay compliant.

Tax Compliance

WHAT IT IS:  The government in the US and many other countries keeps a close eye on all earned income—which includes recognition and anniversary awards. Because most awards are considered to be compensation, they are taxable.

THE PROBLEM: Companies must keep a close eye on awards to avoid tax trouble. While merchandise given as an anniversary award may be tax exempt, other awards must be included as taxable income on employee paychecks or “grossed up” by companies who absorb the taxes within the award value. Unfortunately, many companies run non-compliant recognition. For example: the manager with a stack of gift cards in a drawer—handing out rewards that are not tracked. Or another manager who takes employees out to dinner or an event, and simply notes it on an expense report. This sort of recognition does not hold up very well to an audit, and can lead to a lot of headaches for HR and Finance.

THE RECOGNITION SOLUTION:  A formal recognition program offers you a way to ensure that your awards are consistently given and recorded according to tax laws. It also feeds recognition and award data back into your payroll and other HRIS systems to allow it to be tracked and captured along with all of other compensation data. It also helps you to determine what awards are and are not taxable events, and adjust accordingly.

BE SURE THAT   … your program is 100% tracked, and the data it produces will integrate well with payroll and other HRIS systems.


WHAT IT IS: Diversity is “any dimension that can be used to differentiate groups and people from one another. It means respect for and appreciation of differences in ethnicity, gender, age, national origin, disability, sexual orientation, education, and religion”. SHRM even extends this list by adding other diversity traits such as socio-economic status, marital status, functional specialty, body type, level in organization and personality.

THE PROBLEM: Too often recognition programs are designed for “common denominators”—which are the enemy of diversity and invite charges of discrimination. Ballgame tickets for a male-dominated sales team might seem like a great idea, but could be seen as offensive or stereotyping by some employees. A pepperoni pizza for the group might be a popular choice—or you might be inadvertently offending people’s religious and dietary sensitivities. You cannot make assumptions about people, and limiting reward choices does just that.

THE RECOGNITION SOLUTION: Good recognition offers unlimited choice to accommodate infinite diversity—and puts the responsibility for that choice where it belongs—with each individual. Allowing employees to choose their own rewards from the broadest possible selection eliminates potential insensitivity to employee differences, and lets you accommodate a diverse and unique workforce.

BE SURE THAT  …your reward choice is as close to unlimited as possible.


WHAT IT IS: SHRM defines inclusion (PPT) as ““the achievement of a work environment in which all individuals are treated fairly and respectfully, have equal access to opportunities and resources, and can contribute fully to the organization’s success.” .

THE PROBLEM: Many companies today practice “exclusive” recognition that rewards only the very top performers. Programs with limited winners’ circles like employee of the month make winners out of 1-2% of your workers and losers out of the other 98-99%.

THE RECOGNITION SOLUTION: Good, strategic recognition is inclusive, not exclusive. It ensures that everyone equal access to recognition and reward. By offering the same branded recognition experience for all, and the same opportunity to share in recognition, you can remove significant risk associated with multiple, unregulated programs and inconsistent treatment of employees.

BE SURE THAT  …all employees have the opportunity to be included in a rewards program that is intended to reach 80%+ of employees annually.


WHAT IT IS:  Consistency is always top of mind for HR, so it needs no formal definition. Scalability and standards of fairness demand that our HCM programs be consistent.

THE PROBLEM: Many recognition programs are really just a collection of ad hoc initiatives, un-standardized, with different reward programs available in different departments, divisions or regions. This creates a culture of “haves” and “have nots” where recognition is a different experience for workers depending on their role or manager.

THE RECOGNITION SOLUTION:  By using a single unified recognition platform, you ensure that you are standardizing the recognition experience for everyone in your organization. This minimizes the liabilities associated with renegade recognition and eases centralized oversight.

BE SURE THAT   …all of your recognition is consolidated onto a single platform and experience, everywhere in the world.


WHAT IT IS:  Governance is the tactical manifestation of the three above categories. While there is no universal definition, it has been succinctly described as “the practices and processes that are put in place to help organizations achieve their goals ethically and in the best interest of all stakeholders.” I would add that it is also the ability to measure and manage via those practices and process.

THE PROBLEM: Too many recognition schemes are decentralized, inconsistent and un-measurable. At best, they run in tandem with ont another but do not share information or administration. At worst, they are completely un-tracked and off the grid.

THE RECOGNITION SOLUTION:  Good, strategic recognition brings all recognition together under a single umbrella, ensuring that you can access, measure, manage and report on recognition activity everywhere in your organization. Only this kind of global visibility on company-wide recognition can ensure proper governance.

BE SURE THAT   …your program is centralized and offers robust reporting options.

Choosing a strategic recognition program is a key compliance decision. Not only does it prevent new headaches… but it can also solve some of the headaches you already have. Ignore compliance at your peril.

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