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Well I agree that it would depend on department size. the bigger the department, the harder it is to have everyone getting along although as you didn't refer to that, I just assumed you meant every department!
As for staff wondering why they didn't get it that's going to happen regardless tbh. :)
It'd be difficult to judge, considering that this would be among staff in different departments who do different amounts of work / are judged differently. I really doubt there would be an impartial way to judge it based on work done because a Content Designer who did loads of guides for the site that much does a hell of a lot for the site, but the DJ that is very popular or the Help Desk worker who is in the desk a bit will be more known as their job puts them in contact with other staffers more. Beyond that it would also be a popularity contest in terms of work done.
The only way to impartially do this would be for each manager to submit their individual SOTM to the GM/AGM (Staff) with an explanation about why that staff member got it and the GM/AGM could weigh it and they would be able to realize how much the staffer did for Habbox and also spread it around between departments. To me the biggest issue with this is that it's an unnecessary task for the GM/AGM staff though if they limit the brief to 150 words then maybe it could work, it's up to the GM team. There is also the minor issue of GM/AGM perhaps being favorites but if you've got GMs/AGMs that can't make decisions impartially, then there are bigger problems.
I'll shed some light on this from the perspective where we do it every week, publicly yknow.
Every week we have to choose a member of staff who has shined out in their department. They don't get much more than a award badge saying they've done well, and a thread + page on the site + announcement on the forum & site saying they won it this week. I have to manage the Graphics Department and also temporarily look over the News Department, & also choose who should get SOTW whenever a Manager is away and unable to choose one, so I know how hard it is to select one person out of a team of lets say, 10 people, especially based on their performance in a week. Right now though, I don't think the award of Staff of the Week is highly valued as it's been going on ever since ClubHabbo opened (I think?), so getting a thread and some recognition for outstanding work is nice, but I personally have my doubts the system is as rewarding as it sounds.
I know that Habbox does their Departmental Staff of the Months which is what we do at ClubHabbo, except its weekly. I don't see any trouble in making the information public. I may have went off on a bit of a tangent on the above but just getting the message across that it's not as bigger deal as you'd think, and staff don't necessarily get demoralize, but I don't think at CH they get motivated due to it.