Everyone wants a positive Return on Investment (ROI) for any new project or program. Employee recognition is no different.
Leaders and program owners alike want to know and compare the monetary benefits from their recognition program. One client recently asked me, what do you consider the estimated return on investment for implementing employee recognition program?
Unfortunately, the quick and easy answer to that broad question is, “that depends.”
But to bring some peace of mind to any of you who might have the same question, I will now give a more detailed answer.
Online recognition programs are websites acting as a central platform for a variety of recognition and reward programs. They allow everyone in an organization to express their appreciation, say thanks to folks, and give recognition for the great things people do at work every day.
Those with permission can also give people rewards, whether tangible, monetary, or experiential. You give rewards to people for going above and beyond normal work expectations and when excellent performance occurs.
What can your recognition programs tell you that you’re not tapping into?
We need greater accountability for the success of our incentive programs. Planning to calculate the ROI of incentive programs from the start will help us focus on results. Following the Top 10 Ways to Measure the ROI of Incentive Programs will be a handy checklist to ensure the success and ROI of your incentive programs.
1. Identify the problem you want incentivized. Assess the current performance problem to determine the needs, conduct a gap analysis, and look for potential improvements you think could be incentivized. Too many accidents, not enough sales, losing too many people, or not reaching performance targets.
2. What are the costs of the problem? Analyze the direct and indirect costs currently associated with the identified performance problem or need. Like: What are salary and operational costs for a retail store? What are turnover costs? What is the number of lost-time days due to accidents?
3. Determine the achievable objectives. Propose one or two key measurable objectives to be targeted by incentives. Example: percentage of reduced voluntary turnover; increased quarterly productivity indicators at retail stores; percentage of sales performance numbers; or, reduced number of annual accidents per year.
4. Figure out the best measures to use. Identify the specific behavioral measures you will use to determine the right program success measures. When you define the performance well enough you will know the behaviors you want more or less of. You’ll then know if the behaviors occur or not and how to measure them.
5. Calculate the costs of incentives. Project the overall costs associated with conducting an incentive plan to improve the performance problem. Determine the value of incentives, the frequency or number of behaviors required for an incentive, the time period of the incentive plan, and multiply to determine total costs.
6. Keep tabs on budget spend. Monitor the costs associated with producing the improved performance results along with implementing the incentive plan. ROI is about return on investment of monies spent, which includes administration costs, monitoring, data collecting, and analysis.
7. Gather the data you need. Collect baseline data of target performance results from the period before the incentive plan began as well as during the implementation period (e.g. year before versus current year). Do as much as you can before the incentive plan so you can deal more with data following implementation.
8. Create a before and after analysis. Analyze and calculate the costs of the targeted performance problem before and after the incentive plan. Here you monetizing as much of the data as you can. Make friends with the folks in finance to help you put a dollar figure on as many data points as is possible.
9. Consider reasons for the success, or not. Give a general interpretation of the results observed of performance outcomes achieved while using incentives. This is putting the human observation and deductive reasoning as to whether things worked or not. Your hypothesis can then be validated by the data collected.
10. Work out the ROI. Calculate the actual return on investment. The math is easy: It’s the estimated dollar amount of the impact made by the incentive plan minus the combination of the annual incentive payout costs plus administration costs, then divide the previous total by the impact dollar amount, and finally multiplied by 100. Previously published in Incentive Magazine
Previously published in Incentive Magazine
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.
It could be a senior leader asking you about the ROI (return on investment) of the proposed recognition program before they sign off on the approval.
Or maybe your CFO asks the question before he’ll issue the cheque.
Whether for fiscal responsibility or validation of the value of employee recognition programs, calculating the ROI can be a helpful tool to communicate the success of your recognition programs.
How do you calculate the Return on Investment of your recognition programs?
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. (more…)
On Tuesday I presented a session at the Recognition Professionals International conference in hot and humid Fort Lauderdale, Florida.
My session was on dealing with How To Make Positive Changes To Your Recognition Programs.
At the start of the session I asked the practitioner and provider attendees a question. The question was, “what are the biggest challenges or problems you struggle with for any of your employee recognition programs?”
Here’s what the recognition professionals gave me, which were written up on a flip chart:
Consistency
Out-dated
Unaware
Push back from leadership
Misinformation
Management buy-in
Measuring ROI
The rest of the session I focused on providing people with the process and tools for making improvements in a systematic way rather than just waiting for things to break, so to speak.
Quick Solutions to Problems
To specifically help those who attended my session and to assist all of my readers, I am including a few links to past posts to address some of these challenges.
2. Out-dated: I told the seminar participants that I go out on a date every week with my wife, Irene. In fact we are going to see a children’s performance tonight of “The Wizard of Oz”. But on a serious vein, with recognition programs they do need to be kept revitalized. Try out this post for some ideas 7 Deadly Warning Signs Your Recognition Program Is Failing.
3. Unaware: I won’t pretend I’ve written on every subject related to recognition. This is probably one of them. That’s why I love it when you send in your challenges and ideas. They often become posts. My best stab at this is to suggest you read When Recognition Doesn’t Work and perhaps even 7 Simple Hacks to a Great Communications Plan to stimulate your thinking.
4. Leader Push Back and Buy-In: I combined these two because I think they are related. Leaders are not expected to know everything about employee recognition. That’s your job. So educate them and keep them informed like this Communicating with Leaders Using the “CNN Effect”. Furthermore, I taught those in my seminar that you don’t want leaders’ buy-in. Buy-in is so monetary focused and transaction. What you really need is their personal commitment and you can discover more here How To Win a Leader’s Commitment and Buy-In for Recognition.
5. Misinformation: Nada! I will have to think on this and get back to everyone on it.
6. Measuring ROI: Hmm! I realize I have not written a blog post on this topic specifically. But to help you along, here’s a related post on Understanding the Business Case for Recognition. I am not going to leave you high and dry though! If you don’t mind leaving this page and going to Incentive Magazine, here’s my Top 10 Tips for Solid Recognition ROI. Hope you enjoy it!
Once you’ve wrapped your head around a few of these topic areas please let me know what other questions still remain for you.
Question: Where do you go to learn more about employee recognition practices and programs?
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.
