Remember Dan Price, the CEO of Gravity Payments, who shot to fame for taking a pay cut while increasing his employee’s wages? He’s back on Twitter, asking people to give their opinions on what made them quit their jobs. The overwhelming response points to the recognition or the lack thereof.

Doubtless, the success of your business depends on your employees, which indirectly relates to your employee rewards and recognition program.

Enough studies have shown the importance of a documented R&R strategy and the need for an R&R digital platform to drive the program and generate detailed program analytics. Still, to calculate the actual ROI of your program, you need to ask yourself three crucial questions:

  • Is your recognition program worth the investment?
  • What are the dividends on your employee engagement initiatives (are the benefits>costs)?
  • Can you quantify the return on your program investment?

It’s time to crunch the numbers, which is no mean feat given that things like recognition and engagement are primarily intangible.

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A report by the Incentive Research Foundation called the IRF 2020 Trends Report found that 44% of organizations analyzed how recognition programs change behavior. Other studies show the impact of recognition programs in the form of measurable ROI.

Quantifying your recognition program ROI

Now that we’ve established that recognition ROI can be measured in quantifiable terms to gauge the program’s success, it’s time to ask the burning question:

How do you measure employee recognition programs, determine their efficacy, and justify their continuation?

Well, for starters, it helps to invest in a robust R&R platform or tool that provides detailed analytics and data-based insights about your recognition program. These metrics help calculate the ROI accurately. Best practices also suggest that the recognition program budget should be set at 1% of the payroll.

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According to SHRM, 35% use online platforms for recognition, and less than 15% use analytics technology in their employee recognition programs.

Think of your recognition program like a game of Code Karts where you have to code the car (employee) to the finish line, and you can do it through problem-solving, sequencing, and logic. Your recognition program also requires a unique combination of productivity, engagement, and rewards. KPIs and impact are the analytics used to measure and calculate your ROI.

How to set KPIs to measure employee recognition programs?

Define a set of program-specific business KPIs to measure the efficiency of your employee recognition program.

1. Financial

Though indirectly tied to the recognition program, these are long-term, tangible metrics that can be analyzed and verified to arrive at definite business results when calculating the recognition ROI. They include:

  • Employee attendance: Any increase or decrease in attendance rates can be attributed to the recognition program.
  • Turnover: The lesser the employee turnover, the better the efficacy of the recognition program.
  • Productivity: Increased productivity translates into higher ROI from your program.
  • Profitability: Profitability is directly proportional to sales targets and can help determine the program ROI.
  • Referrals/Brand Advocacy: The number of employee referrals and how your employees become brand advocates on job boards, and social media determines the success or failure of your program.  
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Deloitte says that organizations with a recognition-rich culture have a 31% lesser voluntary turnover rate than companies with poor recognition cultures.

2. Engagement

These are short-term metrics and are directly tied to the recognition program. In other words, the more engaged the employees are with the program, the higher the dividend. They include:

  • Program participation (adoption and engagement)
  • Employee survey results are a great measure of program effectiveness
  • Peer-to-Peer recognition and manager feedback are good indicators too
  • Employee satisfaction scores
  • Reduction in HR resources
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According to Gallup, highly engaged teams show 21% greater profitability, 41% lower absenteeism, 24% less turnover, and 17% higher productivity.

Tangible impacts

Here’s a step-by-step process to calculate the return on investment from your recognition and rewards program.

Calculating the average cost of employee recognition and rewards programs:

ROI = Return ÷ Investment

Formula for measuring ‘return’

  • Return = Additional Revenue + Total Cost Savings - Investment

An effective recognition program positively impacts productivity while reducing turnover, absenteeism, and onboarding costs.

  • Total Cost Savings = Total Productivity Gain + Turnover Savings + Absenteeism Savings + Onboarding Savings
  • Total Productivity Gain = # of Employees x Avg. Annual Salary x % Productivity Increase
  • Turnover Savings = (# Employees x Turnover Rate) x (Salary x Turnover Cost ) x Turnover Reduction
  • Absenteeism Savings = # of Employees x (Salary / # of Work Days) x Reduced Days of Absenteeism
  • Onboarding Savings = (Training Period x Salary) Savings % x # Employees x (Growth + Turnover)

Formula for measuring ‘investment’

  • Investment = Cost of Rewards + Platform Fees
  • Cost of Rewards = # of Employees x 1% x Avg. Annual Salary
  • Platform Fees = Total Employee Count x Platform Fee/Month/Employee x 12

Intangible impacts

When calculating the ROI of your employeee recognition programs, you must consider two other areas apart from the business impact. These are intangible because you cannot enumerate them. However, together with the business impact, they can help you visualize your recognition program ROI entirely.

1. Experience impact

A great recognition program generates positive experiences throughout the lifecycle of the employee, from onboarding to exit.

Your recognition program experience affects employee motivation, satisfaction, and wellbeing and is directly proportional to their productivity.

This, combined with their interactions with the program, adoption, participation, usage, and satisfaction, can help you determine the overall experience impact on your recognition ROI. To put it simply, the better the recognition experience, the higher the ROI.

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E.On’s strategy to improve recognition experience increased its employee motivation score to 69%.

2. Culture impact

According to Forbes, a thriving workplace culture should be built on your company’s values. Conversely, your program should recognize people displaying those values in their daily journey with your company.

Given the intimate connection between culture and recognition, you need to quantify the adoption of your values-based, purpose-driven recognition program. Analyze which values have high versus low adoption, and you will get an accurate picture of the impact of recognition on your culture.

Next steps

You have successfully launched your employee recognition program, identified the KPIs, and measured your recognition program’s success against defined business goals.

What’s next?

Analyze the results and turn your insights into a plan of action to improve your program. This should be a recurring process to keep on top of any changes in your employee engagement goals.

If you track the progress and changes to ensure they remain relevant, you will be rewarded with increased ROI from your program.

While a combination of quantitative and qualitative research is ideal for getting a complete picture of your recognition program's ROI, a digital recognition platform with built-in measurement tools takes the burden of calculations off your shoulders.

Simplify employee rewards and recognition with Empuls!

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Mary Madhavi Reddy

Mary Madhavi Reddy LinkedIn

Mary is a content marketer with 20 years of experience. Her career spans GE Money, Google, and some growth-stage startups. At Empuls, she handles product messaging and positioning.