It seems not enough organizations hold their leaders and managers accountable for giving meaningful and effective recognition to their staff.
These same organizational leaders ask why responses to recognition questions on the last engagement survey did not turn out so well. It is as if it surprised them to see these low numbers. Surely, they would have expected these numbers if leaders regularly connected with their direct reports.
Their problem was they did not hold leaders and managers accountable for recognizing their employees.
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.
Lots of companies think their recognition programs are the very best. Many that I have seen are truly pretty amazing and exemplary. A few think of themselves a little better than they really are. But at least they’re trying.
Since judging the best practices nominations submitted to Recognition Professionals International for the past 11-years, I have seen the overview of nearly a hundred or so recognition programs. Based on the criteria that I had a hand in developing, the other judges and I score each nomination, and also provide helpful, written feedback on their programs.
Often, those who submit their nomination the first time receive a best in class award covering a few of the seven best practice standards. They usually act on the judges’ feedback and resubmit the following year. If companies carry out the recommendations that judges suggested they typically raise the bar and can merit earning the best practices overall award.
How good do you think your recognition programs are? If you submitted a best practices award nomination for your company, would you measure up?
Take a look at RPI’s seven best practice standards below and assess where you think you would stack up on a seven or 10 point scale. (more…)