How to prove the ROI of employee recognition

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How to prove the ROI of your employee recognition scheme

The best businesses are the ones that are always looking for ways to improve, to enhance their offering and get the best out of their people, and for some time it’s been well recognised that having highly motivated and engaged employees is the foundation for which an organisation can grow and become successful.

But one of the problems for people managers whilst looking to boost employee performance is that executives within an organisation, despite likely having benefited from recognition and even mentorship throughout their careers to get to where they are, typically have other top-line focuses such as strategy and products or service, as well as the all-important bottom line.

So how can you convince your organisation to roll-out a full recognition and engagement strategy? Well, that’s a question for another day. What I want to look at here is how you can actually prove the benefits of a programme once it’s in place (which is always a good starting place when pitching a new people management idea to the C-suite anyway).

What is the likely return on investment from a recognition programme? The tangible financial benefits that are going to boost the bottom line?

Here are three key areas in which recognition can prove an ROI:

Less money spent on recruitment

Well recognised employees are more loyal - it’s a fact that’s been supported by study after study looking into the benefits of appreciation and engagement.

Access to Employment estimate that recruitment fees alone for an average salaried position will set you back around £5,000, or hiring through promoted links on social media and job boards around £400. If your organisation has 100 employees but loses 15% each year to other job offers, that’s a potential £75,000 in recruitment costs if all hiring is outsourced. Boost job loyalty by 10% and that’s a potential £50,000 a year saving in hiring fees.

Not a bad start (albeit a hypothetical one). Although, a survey by Robert Half found that 12% of workers questioned would leave their jobs because they don’t feel appreciated. Ensuring those 12% of staff, as well as all other employees, know that their efforts are recognised and showing gratitude for their achievements is a great starting point to ensure job loyalty for years to come.

Measuring the ROI of recognition against recruitment costs, for larger organisations in particular where hirings and firings occur on a weekly basis due to the size of the workforce, can be done quarterly and compared to the previous year’s outlay on recruitment expenditure.

A well recognised and rewarded workforce is a loyal one, and you should see a marked difference that immediately benefits the bottom line as well.

Less time invested in training

There are two important angles to this.

First, there’s the time you won’t need to spend training new as many new recruits as, as noted above, your employee turnover will likely decrease. That’s time that can instead be invested in further developing your current teams, broadening skill-sets or even really helping employees become specialists in their fields.

Second, a highly-engaged company culture is more likely than not going to push teams into being more collaborative and supportive of one another. So, whilst you may still need to invest some time into training specific skills, greater collaboration and teamwork will naturally lead to more knowledge-sharing and a deeper inter-departmental understanding of what one-another does, how they can help and also what help can be offered to them.
Measuring the cost-savings of training against investment in a recognition program could take a year or two to really quantify, but the results could be surprising for larger organisations.

However, that doesn’t mean cutting the training bill two years in is the always the best solution!

Instead, re-invest that budget back into your workforce, help it become abler and motivate your now medium-long term employees even further by helping them become real masters in their chosen profession.

Enhanced customer satisfaction

For some executives, pitching that an employee recognition strategy will make their customers happy and more loyal too might seem a bit of a stretch - but it really isn’t and there is a direct correlation to be presented.

One particular study by Northwestern University highlighted the importance of having highly engaged employees and the benefits for improving customer satisfaction. Partly this was down to the fact that your employees are often the voice of your organisation and the ones to speak directly with customers. But also, because customer concerns are often noted by employees, and engaged and motivated staff are far more likely to voice this feedback to department heads and executives within the business.

And not only will your happy customers spend more with you and tell all their friends about the great products and/or service you provide, they’ll also cost you less to serve and keep satisfied. Fewer calls to helplines, less Twitter complaints to sift through and fewer requests for refunds or discounts too.

A quote that nicely sums up the required approach to both customer and employee loyalty, from entrepreneur Rachel Elnaugh, is that: “The strategy of creating a rewarding culture that keeps customers loyal is the same one that will keep your employees from ever wanting to stray”.

In the current challenging retail climate, in particular, both online and on the high street, proving your business has a clear advantage or benefit over a rival is proving more and more important. Providing the best customer service and care is just one way in which a business can look to differentiate itself, and boosting employee engagement through recognition and appreciation is one way to do it.

In summary...

Surveys conducted by WorldatWork and Deloitte report that current recognition spending is around just 0.3% - 1% of company budgets. But with the above financial benefits to be gained through a sustained and well-funded program, maybe it’s time more focus and budget was invested on employee recognition programmes within all organisations.

About Sinead Healy

Sinead Healy

Co-founder & MD @ Fanclub Recognition Ltd

Making employee recognition frequent, genuine & easy

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01st Jan 2019 15:12

I applaud the author's focus on return on investment, clearly a business perspective that senior management will respond well to. Recognition is one element of how companies can improve business results and the lives of the employees who drive those results by empowering employees to think and act like owners. This Forbes article provides more information: https://www.forbes.com/sites/fotschcase/2017/07/25/the-business-case-for...

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