Investing in people and processes are an integral part of any business. And trying to get a sense of what the return on that investment will be is the automatic next question when determining what and where those investments will be.
When it comes to employee compensation, or market pricing systems, organizations may be spending an average of $200 on each employee for award and administrative costs. And the executives will want to know what their return will be for that money. To keep your employee recognition program high on the list of budget priorities, demonstrate what the ROI actually is and what a difference it makes.
Here are some steps for calculating a tangible ROI for this more subjective initiative:
Identify Program Objectives
For an ROI to be meaningful, the organization needs to decide what the business need is for establishing this type of program. Is your company looking to improve morale, increase productivity, improve attendance, reduce turnover rates, or enhance customer service? While any and all of these could be relevant goals, try to hone in on the few that are most important at this time, and which could be most impacted by an employee recognition program. Your argument for ROI will be more straightforward when it focuses on 1-2 objectives, and any other positive impacts will only add to its value.
As you consider which key objectives to select as the foundation for your ROI, factor in the financial benefits of each. For instance, reducing the turnover rate could save in recruiting and training costs, and in fact tenure is the focus of 87% of recognition programs. Improving attendance for those prone to absenteeism could reduce resulting overtime costs for other employees. The more straightforward the data, the easier your calculations can be.
Determine Existing Key Metrics
By using the same metrics that are currently referenced to measure morale, you can work with an existing, accepted baseline rather than trying to redefine your own terms. Consider productivity or rework costs, employee surveys, or other tools that are already relied on. This will provide validity to your data, and make it easier for executives to perceive the ROI, while unfamiliar metrics may be harder to accept.
Define Specific Recognition-Worthy Behaviors
A vague recognition program loses a lot of power when all it looks for are ambiguous instances of “leadership,” “going above and beyond,” or “demonstrating company values”. Employees may be confused or unimpressed, or simply not be looking for concrete examples of these more abstract concepts. Either provides specify actions that can inform the entire company or have each department’s management teams define their own examples of impactful changes. Again, these examples should be informed by your objectives, whether it’s sales-related accomplishments or productivity-boosting actions.
Communicate these new incentives! Although three out of four companies have active recognition programs, only 58 percent of employees know about them. That’s nearly half of employees that aren’t being motivated by your program simply because they are unaware. If your company cannot even communicate its desire to recognize employees, then you may need to start back even further than just a recognition program.
Set a Realistic Schedule
As with any major program launch, it may take some time for the protocols to get started, and more time still for the ROI to be evident. Rather than expecting to see any meaningful results within six months, focus on in-progress milestones, such as the percentage of managers who are participating in the program training, how many recognitions employees have sent to their co-workers, and the percent of employees and managers who are involved. These signs of forward movement can evidence the promise of your program even if you don’t have any solid returns to show. Keep in mind that for bigger companies and loftier goals, it could take as long as three years to show true ROI.
Establish a Control Group
To truly understand the impact of your program, it’s important to have a control group: a department or percentage of employees who are not participating in the program. The best way to maintain credibility is by having an effective comparison. Consult with leadership and analytical teams for assistance in selecting and developing the control group for maximum efficiency.
Be Conservative and Transparent About Costs
Acknowledge all potential costs up front, and then be conservative when giving your report to leadership. Rather than take full credit for any improvements, be cautious about how much can be directly attributed to employee recognition initiatives. If you can demonstrate that the positive ROI was even 50 percent related to your program, you will earn additional credibility and can’t be accused of assuming too much about your program.
In one survey, when employees were asked what leaders could do more of to improve engagement, 58 percent of respondents replied “Give recognition.” With these steps you can begin to calculate the ROI of your employee recognition program. It’s also important to point out to the leadership team that companies with happy employees outperform competitors by 20 percent, and build for themselves a stronger, more appealing reputation as an employer and as a company.