ROI to the Power of 3 on Employee Recognition

If you’ve been running recognition programs and initiatives for a while, you have likely encountered the inquisitive, cynical, or perhaps challenging leader who throws down the ROI gauntlet for you to “prove” recognition is contributing to the bottom line.

My recommendation is to be careful about jumping too quickly or focusing solely on the money-sided ROI. Make sure you examine both below and above the bottom line to more easily convert recognition into an investment versus an expense.

Yes, there is a lot more to ROI than meets the eye, which is why we will examine ROI to the power of three. It’s much more than being financial.

You need to look at other returns that can come from recognition.

Discover ROI1: Return on Intangible

The first ROI of recognition you should investigate is the Return on Intangible.

It is easy to forget about the Intangible benefits that come from meaningful, well delivered recognition practices and effectively used recognition programs.

If there is one thing I have learned in the recognition field it is the desire most employees have to be acknowledged and for their contributions to be valued.

Employee pride in their personal work and in the company they work for is priceless in value but you need to find out those measures.

This is where you need to measure the first of the three “B’s” – namely, employee Beliefs.

How do you measure something that is so intangible? What can you do to measure people’s beliefs?

You use the tools most social scientists do such as Likert scale full surveys or short pulse check surveys to capture employee attitudes and awareness towards recognition.

You might look at people’s attitudes towards recognition at the company and determine at a point in time how positively or negatively they view recognition. Here you draw upon bipolar adjectives that are opposites like “hot vs. cold”, “good vs. bad” or “weak vs. strong”.

Another perspective is how powerful recognition is seen for the individual and whether it is an active or passive subject.

Then you can compare employee results in 6-months or at the year mark and gain insights on whether your initiatives have made a difference or not.

With all the measures you will be looking at you will compare baseline with current state indicators. From then on you have the opportunity to capture how employees feel about recognition.

You can start to correlate these metrics with any of your direct employee recognition outcomes.

Check Out ROI2: Return on Individual

Another way of evaluating your Recognition return is to look at the Return on Individual.

You can look at the actions your employees take to see how Recognition is impacting them.

Look at how employees are progressing in their career development and ongoing education. When you know you are appreciated and acknowledged for your work you are more willing to develop yourself for the company.

Employees should be energized and engaged and willing to give discretionary effort. Engaged employees have a greater desire to stay with an organization and are more willing to recommend their company to others.

Which all leads to the second “B” you need to measure which is Behaviors.

Start looking at active, positive behaviors that show how individuals are engaged and feel appreciated.

Employee engagement studies show strong correlation between the discretionary effort employees give and the positive financial performance of a company.

These Individual measures of “ROI” are above the bottom line as a recognition return indicator. It is simply one’s investment in people. Participation is typically the behavior you want be measuring.

Many organizations with high performing, talented employees know there is a fine line between providing competitive remuneration and benefits – the total rewards package – and what employees consider as the perks and recognition that can tip the scale to greater retention.

Companies that develop progressive career planning and coaching, ongoing education and development, cross training and skill enhancement, as well as on-site health and wellness programs, know they are creating essential investment strategies in an organization’s “human capital”.

From forward thinking people to improved employee participation and performance outcomes, investing in people always produces good results.

When you actively promote all of these types of initiatives you can begin to measure participation within these programs, obtain baseline measures as applicable and show rates of improvement, achievement and overall success for each available program.

Ongoing follow up with employees can provide subjective as well as quantifiable indicators on how people are doing and improving. Satisfied employees become magnets for attracting and referring similar quality people, which reduces recruitment costs.

Such proactive practices can’t help but improve engagement and employee satisfaction scores. And the better these employee scores are the better your customer satisfaction levels will become bringing money along with them.

Calculate ROI3: Return on Investment

Finally, the Return most people associate with ROI is Return on Investment.

This is the more typical and expected “ROI”, the return on investment of monies invested into employee recognition practices, programs and administration.

It is the ultimate bottom line in any organization. It is also a very popular metric because of how simple it is to calculate and has become the ominous watchdog percentage of whether an investment in recognition programs should be undertaken, continued or stopped.

Your goal is to monetize as many of the outcome metrics available to you as possible. Performance results always produce the greatest impact and are easy to translate into monetary amounts. And, of course, never neglect revenue and profits

However, human resource metrics can also be turned into dollar signs. Get friendly with your chief financial officer to help you out with finding numbers like voluntary turnover and producing turnover costs, etc.

For this ROI the third “B” is all about the Bottom-line. For example, you can work out the net program benefits, which is the program benefits minus the costs, and then divide this by the total costs. Once you have this ROI ratio you can multiply it by 100 to obtain the actual ROI percentage.

As an example we will say the latest performance focused recognition program created a reduction in turnover costs of $125,000. The annual reward point spend was $36,000. The net benefit is $125,000 minus the $36,000 or $89,000. Divide this amount by the cost of $36,000 and you get 2.47.

You can turn this into Benefit/ Cost ratio of 2.47:1. Multiply this ratio by 100 and you have your ROI or Return on Investment of 247%.

You need to prove to your executive sponsor and likely to leaders of human resources that employee recognition really makes a difference.

Have employee recognition programs improved targeted objectives by reinforcing new behaviors? A simple calculation is all you need to do. A positive percentage means you realized a gain from your investment in employee recognition.

With ROI3 – Return on Investment to the Power of Three – you can calculate how recognition contributes not only financially but also to the often hidden factors of the intangibles and the impact recognition has on individuals throughout the organization.

A three-pronged approach will provide you with a wealth of data and information to prove the value of your recognition practices and programs.

Question: How do you create your ROI on employee recognition programs and practices?

Roy is no longer writing new content for this site (he has retired!), but you can subscribe to Engage2Excel’s blog as Engage2Excel will be taking Roy’s place writing about similar topics on employee recognition and retention, leadership and strategy.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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