Calculating the ROI on Employee Recognition: A Guide for Businesses

People work for money but go the extra mile for recognition, praise, and rewards.
– Dale Carnegie, Leadership Training Guru

Measuring the ROI of implementing a successful program that goes beyond mere acknowledgment. Rewards and recognition is is a big step toward implementing a successful program that goes beyond mere acknowledgment.

According to a survey, almost 78 percent of employees would work harder if they were better recognized.

It serves as the compass, guiding organizations in understanding the effectiveness and impact of their investment in employee appreciation.

Businesses can strategically align their recognition initiatives with overarching goals by quantifying the returns, ensuring a symbiotic relationship between employee morale and organizational success.

When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.
–Simon Sinek

Many professionals value a culture of gratitude and positive communication.Thus, incorporating such expressions into daily interactions can contribute to a more rewarding work environment.

So, let's discuss the ROI in rewards and recognition and its impact on jazzing up your workplace while also helping your business grow.

What is ROI?

ROI, or Return on Investment, helps evaluate the effectiveness of a recognition program in an organization.

• It allows you to gauge the real impact of your efforts, providing insights into the value of employee engagement, satisfaction, and retention.
• It helps justify allocating resources to recognition; guiding you in optimizing the program, ensuring that it consistently enhances employee morale and drives organizational success.
• ROI isn't just about money; it's like a report card for how well your recognition program is doing.
• It shows you if your appreciation efforts are working, making your team happier and your organization more successful.

How to calculate/measure the ROI

Rewards and recognition programs require time, money, effort, and strategy investment. So, how can organizations know these investments are worth it?

The answer lies in calculating the return on investment (ROI).

Calculating ROI is like figuring out if your investment in something—like a new project or a recognition program—is paying off.

In simple terms, it's the math behind ensuring your efforts bring in the good stuff.

Let's break down the formula for calculating ROI for a recognition program and explain the various parameters involved:

ROI (Return on Investment) = ((Total Benefits - Total Costs) / Total Costs) x 100

Total Benefits: This is the sum of your recognition program's measurable gains and positive changes. Benefits include reduced turnover, increased productivity, improved employee morale, and any other specific outcomes you set as your program's objectives.

Total Costs: Total costs encompass all the expenses associated with your recognition program. This includes the cost of rewards, administrative costs, technology or software expenses, and any other costs directly related to the program's operation.

ROI: Return on Investment is the percentage that indicates the efficiency and effectiveness of your recognition program. It quantifies the return you get for every dollar invested in the program. A positive ROI suggests that your program provides value greater than the costs incurred.

Benefits of measuring the ROI of rewards and recognition programs

Here is how a reward and recognition program will reflect your organization's desired results.

A. Increased Employee Engagement

When employees feel appreciated and recognized, they become more engaged with their work, leading to higher job satisfaction, better morale, and a stronger connection to the organization's mission and values.

However, ensuring that engagement efforts reach all employees, especially in large organizations, can be a significant challenge.

A multi-channel communication strategy combining digital platforms with traditional channels is ideal for overcoming these challenges.

Employee and people engagement platforms like Vantage Circle, Lattice,and Workvivo utilize tools for targeted messaging and ensure leadership actively communicates organizational goals.

A survey by Worldatwork found that 85% of companies with recognition programs saw a positive impact on employee engagement.

As per Mckinsey, 55 percent of employee engagement is driven by nonfinancial recognition, which is the biggest driver of employee experience.

Employee rewards and recognition programs can be a crucial component for creating a motivating workplace culture. Employees thrive on positive reinforcement, and such programs put an additional spotlight on the effort people put into their jobs.

B. Reduced Turnover Rates

Reduced turnover rates signify a more stable and content workforce.

Recognition programs act as a catalyst here, as when employees feel valued and appreciated through recognition programs, they're more likely to stay with the company, resulting in lower turnover. This saves costs associated with hiring and training and contributes to a more experienced and efficient team.

Low-engagement teams typically endure turnover rates that are 18% to 43% higher than those of highly-engaged teams Gallup

A combined report from Globoforce and SHRM revealed that 68% of employers who run a value-based employee recognition program saw an improvement in employee retention.

By calculating the ROI of your recognition programs, you can determine whether these efforts are successfully reducing turnover.

Employee turnover is an expensive setback that organizations face after spending close to hundreds of dollars in recruiting and training. Moreover, a higher turnover rate results in decreased morale, insecurity as well as reduced productivity.

C. Better Business Results

Recognition programs that produce a positive ROI often correlate with improved business outcomes. Leaders today face mounting challenges in motivating employees to drive higher performance and business results. Factors like declining engagement, retention struggles, constant distractions, and remote working make it difficult to focus teams on organizational goals.

Targeted employee recognition helps address these challenges. According to research, strategic rewards and acknowledgment programs improve morale, motivation, and connection to company goals. Companies that leverage solutions like peer bonuses, milestone awards, and value-based recognition can better engage today's workforce.

A report by Aon Hewitt revealed that companies with high levels of engagement outperformed the stock market index by an average of 19%.

According to an SHRM study, a majority of human resource professionals state that their employee recognition program positively impacts:

• organizational culture (85%)
• employee engagement (84%)
• employee experience (89%)
• employee relationships (86%)
• organizational values (83%)

The same study states that a recognition and rewards program is more than 2X likely to drive better business goals.

Thus, the positive ROI of rewards and recognition is undeniable on whether it can contribute to real business success.

See the connection here!

D. Innovation and Productivity

Recognized and engaged employees are more likely to contribute new ideas and exhibit higher levels of creativity and innovation. When recognition programs are effective, they can boost employee productivity and help the organization stay competitive and adaptable in a rapidly changing business landscape.

Offering the employees the opportunity to earn additional perks and frequent recognition pushes them to go above and beyond. Companies have attributed employee recognition to improving sales, customer service, patient satisfaction, and quality metrics.

Studies show that recognition is more effective than a salary bonus at encouraging people to be more innovative and productive.

Employee engagement, productivity, and performance are 14% higher than in organizations without recognition Deloitte

According to an O.C Tanner study, employees who receive strong recognition are 33% more likely to be proactively innovating. All this while generating almost 2x as many ideas per month as those who aren’t recognized enough.

Additionally, according to Globoforce, 78 percent of employees would work harder if they were better recognized.

According to McKinsey, up to 55 percent of employee engagement is driven by nonfinancial recognition.

Employees who receive the necessary recognition are more confident, self-assured, and perform better. On a fundamental level, appreciation makes a person go the extra mile for their organization.

E. Ultimate Brand Value

Employee recognition has positively impacted an organization's brand and value, but it must be implemented thoughtfully. Studies demonstrate appreciation and rewards programs lead to more engaged, invested employees. This drives better client satisfaction, innovation, and ambassadorship, strengthening brand equity.

Almost 66 percent of companies with value-based recognition said it helped them build a stronger employer brand vs. only 28 percent of those with non-value-based recognition.

In a recent SHRM/WorkhumanEmployee Recognition Survey , 64% of HR professionals said values-based recognition helped them build a stronger employer brand.

However, organizations face challenges keeping programs balanced and consistent across geographies and employees. Organizations that invest in understanding employee motivations, track program ROI, and continuously refine recognition deliver stand-out employer brands. However, achieving this requires strategic recognition programs adapted based on data and designed to reinforce culture. The outcome of driving brand value starts with happy, rewarded employees.

Recommended Resource: To get started, Listen to this podcast about designing a winning employee recognition strategy by Matt Burns

The ROI of Rewards and Recognition for Different Industries

Employee recognition comes in all shapes and sizes across various industries. From formal software programs to simple "thank yous" over lunch, most companies understand that appreciating staff is crucial. Different workplaces have different needs - healthcare is not like tech. The bottom line: rewarding hard work matters. A small gesture can make employees feel valued and motivated

Healthcare

In the healthcare industry, rewards and recognition programs mostly revolve around patient care and satisfaction, reduce turnover rates, and increase employee productivity.

According to a Hay Group Study, it was noticed that companies with engaged employees had the power to generate 89% greater patient satisfaction and 50% higher patient loyalty as compared to their disengaged peers

A recent Gallup and Workhuman study found only 18% of healthcare workers say that teams and groups of people are recognized at their organization

Technology

In the technology industry, rewards and recognition programs can help to attract and retain top talent, boost employee morale, and increase innovation.
A joint study by Gallup and Workhuman found that with the right recognition practices with employees, 56 percent are less likely to be looking for external job opportunities; 73 percent are less likely to feel burned out on the job and are five times more likely to see a path to grow at their organizations.

Retail

In the retail industry, rewards and recognition programs can help to improve customer service, increase sales, and reduce employee turnover rates.

Financial Services

Financial services industry is known to have the the highest number rewards and recognition programs as compared to others. Rewards & Recognition play a key role improving customer satisfaction, increase sales, and reduce employee turnover rates.

As per the Gallup Workhuman research - 56% Employees who work in the finance and insurance industry are likely to have a recognition program as compared to others.
Also,employees working in finance and insurance have the highest rate of receiving monetized rewards with their recognition (i.e., money, points or another type of gift).

Manufacturing

The manufacturing industry is one of the toughest to work in,given the long hours, hard work and often remote working areas. This has led to levels of turnover and dissatisfaction in the industry. How
ever rewards and recognition can be the gamechanger in uplifting the morale of the workers and employees.

As per a research by the manufacturing institute , 97% of manufacturing employees who feel valued are highly motivated and satisfied.

The ROI of Rewards and Recognition for Different Types of Rewards and Recognition Programs

Monetary Rewards

Includes financial incentives like bonuses and gift cards can increase employee motivation and performance Measuring this ROI helps organizations understand the financial impact of these incentives on their bottom line.

As per McKinsey, Companies that implemented financial incentives tied directly to transformation outcomes achieved almost a fivefold increase in total shareholder returns (TSR) compared with companies without similar programs.

Only 21% of employees report their organization tying monetary rewards to their recognition strategy. This is especially surprising considering Workhuman research found recognition with monetary rewards is 20% more effective than e-thanks alone when reducing turnover.

Non-monetary Rewards

Includes rewards like personalized recognition, flexi-hours, or career development opportunities etc. Measuring the ROI for these programs can provide insights into long-term benefits, such as improved morale and retention rates.

An astounding 84% of HR leaders with a current employee recognition program reported that it helps with employee engagement as per Workhuman

Peer-to-Peer Recognition

These programs bring a sense of community and teamwork. Measuring the ROI here entails assessing improvements in collaboration, job satisfaction, and reduced interpersonal conflicts.

A survey by Globoforce/Workhumanfound that 41% of employees want to be recognized by a peer, and 37% want to be recognized by their managers.

Manager-to-Employee Recognition

These programs lead to increased employee motivation and better performance. In this case, the ROI lies in improved productivity, reduced absenteeism, and a positive shift in the manager-employee relationship, which can be quantified through performance metrics.

Team Recognition

Here, the ROI is measured in terms of collective productivity, a boost in team morale, and the ability to achieve common goals more efficiently.

Recognition can boost happiness, and according to a study from Warwick University , happier employees are around 12% more productive.

Steps to Calculate the ROI of Rewards and Recognition Programs

Step 1: Identify your goals

Clearly define what you want to achieve with your Recognition and Rewards (R&R) programs. Whether it's improving morale, retention, or performance, having specific goals sets the stage for effective measurement.

Step 2: Choose the right metrics

Select metrics that directly tie to your goals. This could include employee engagement scores, productivity measures, or turnover rates. The key is to pick indicators that align with your organization's overall objectives.

Step 3: Collect Data

Implement systems to consistently gather data on your chosen metrics. Use employee surveys, performance reviews, and other sources to capture both quantitative and qualitative information. Regular data collection ensures you have the insights needed to evaluate the success of your R&R initiatives and make informed decisions for the future.

Step 4: Calculate your ROI

ROI (Return on Investment) = (Total Benefits - Total Costs) / Total Costs) x 100

Wrapping It Up

The modern workplaces recognize that investing in the well-being and recognition of employees is not just a trend but a strategic requirement.

So think about this: How can you use these insights to make your workplace a total game-changer for your people?

It's not just about the numbers; it's about creating a vibe where everyone feels valued.

This article was co-authored by Barsha and Supriya Gupta, who work as digital marketers at Vantage Circle. For any queries reach out to editor@vantagecircle.com.