Measuring employee recognition efforts effectively reveals their true impact on employee morale and company performance.
In this article, we outline key metrics such as employee satisfaction, engagement, retention rates, participation rates, and return on investment (ROI), providing a clear roadmap to assess and refine your recognition strategies.
Why Measuring the Impact of Your Employee Recognition Program is Important
Just as you want to keep your customers pleased with your product or service, the happiness of your employees should be an organizational priority. Recognizing and appreciating they can significantly boost retention, as valued employees are less likely to seek employment elsewhere.
High turnover can be costly in terms of recruitment, training, and lost productivity, so retaining valuable employees can result in real cost savings. Engaged employees are also more productive and committed to their roles, leading to increased innovation and improved overall job performance.
Recognition programs influence other key areas, including:
- Productivity and Performance: Employees who feel recognized are more likely to exceed performance benchmarks. For instance, celebrating achievements, such as meeting quarterly sales targets or successfully completing projects, can motivate them to perform at higher levels, reducing the need for overtime and additional staffing costs.
- Employee Morale and Company’s Culture: These programs contribute to a positive workplace environment where employees feel valued and part of a team. This improved morale could reduce workplace conflicts and foster collaboration, further enhancing productivity.
- Innovation and Creativity: When they are recognized for their contributions, they are more likely to share innovative ideas and solutions, which can lead to improved business processes and products.
- Employee Health and Well-being: Recognized employees experience lower stress levels and higher job satisfaction, which could decrease health-related costs and absenteeism.
Measuring these activities provides concrete data to evaluate their true effectiveness. It allows you to see not just what feels good but what actually contributes to your business goals.
Measurement also helps with refining: If data shows that recognition linked to team members achievements generates mоre significant improvements in teamwork and morale compared to individual recognition, you might choose to emphasize the former.
How to Measure Employee Recognition
Before creating and implementing employee recognition measurement plans, consider the following:
- Goals: What are the specific objectives for you? What are you looking to improve? Employee retention? Satisfaction? Productivity? It's important to understand exactly what you will be measuring to align your rewards system with your company's strategic goals.
- KPIs or OKRs: What key metrics directly relate to the goals of your recognition program? Common metrics include turnover and retention rates, employee engagement scores, and the level of participation in the recognition program.
- Data: Collect information before and after the recognition strategy is implemented. A baseline for comparison allows you to see the changes that occur due to its implementation. Engagement surveys, employee interviews, and performance data can help you gain what you need.
- Expenses: Make a list of all costs, including setting up and ongoing costs relating to employee recognition software, rewards, administration, and so on. It helps you understand the investment required and calculate the revenue. These costs may increase as your company grows. Naturally, your recognition and rewards program will scale to cover more employees or departments. Although the cost might be considerable, it is far less than the cost of neglecting recognition.
- Benefits: If you've improved employee retention, calculate the savings in employee turnover and recruitment costs. This may be the hardest part, depending on your metrics, as you will need to tie these changes directly to the recognition program.
- ROI: Subtract the total cost of the program from the financial benefits it brings. Use the formula ROI = (Net Benefit / Cost of Investment) x 100 to calculate the return on investment. You need it to understand the effectiveness and profitability of your efforts.
This article wouldn't be as practical and useful if we didn't help you make the right calculations. Below are some examples of how to collect and calculate the necessary data, take them as a basis and apply them to your business.
Employee Satisfaction
The first metric we will calculate will be employee satisfaction. For this we take the following data for our framework:
- Specific Purpose:
The main purpose of measuring this indicator is to identify areas of employee satisfaction and dissatisfaction to target improvements.
- Key Indicators:
We can use job satisfaction scores from surveys, measures of voluntary participation in employer initiatives, and direct feedback on workplace culture and peer recognition programs. Try to digitize the responses employees receive, such as asking them to rate the company on various criteria on a 10-point scale.
- Data collection:
The following questions are an example of an employee survey:
- On a scale of 1 to 10, how satisfied are you with your current job?
- How valuable to you is the recognition you receive from the company?
- What changes would increase your job satisfaction?
- Expenses:
The costs of measuring employee satisfaction can be considered survey instruments, possible incentives for completing the survey, and time spent analyzing the data. Factor these into your overall employee incentive program budget.
- Calculate effectiveness:
If previous feedback indicated a need for more frequent recognition and changes were made to address this issue, subsequent surveys should show an increase in satisfaction levels related to it.
- Subtract the costs from the benefits:
If employees report higher satisfaction and stay with the company longer, these are tangible benefits that can be quantified financially.
Employee Engagement
Employee engagement indicates the level of commitment and association of self with the company. It goes beyond satisfaction and assesses how actively and emotionally engaged employees are in their work and the company's values and mission.
- The Goal:
Understand how engaged and enthusiastic employees are about their role and the goals of the business.
- Key Metrics:
- Results from surveys that gauge how employees feel about their job and employer.
- Participation rates in company initiatives, which can indicate the level of proactivity.
- Employee Net Promoter Score (eNPS), which measures the likelihood that employees would recommend the employer to others as a good place to work.
- Quality of work and meeting or exceeding KPIs/OKRs.
- Data collection:
Classic surveys that focus specifically on engagement will help. For example:
- How proud are you to work for this company?
- Do you feel your work is meaningful and has an impact on the business?
- How likely are you to recommend us as a great place to work to friends?
- On a scale of 1 to 10, how motivated are you to do your job better?
- Program Costs:
Costs are similar to those associated with employee engagement — deploying survey and employee recognition platforms, analytics software, and possibly training managers to better drive engagement.
- Calculate effectiveness:
Look for improvements in scores, increased engagement, and increased productivity.
Retention Rates
Retention rate measures the percentage of employees who stay with your company over a period of time. A successful recognition program creates a positive work environment that encourages employees to stay with the company.
Onboarding a new staff member can be costly. If you factor in the cost of recruitment and the loss of productivity while the role is vacant, significant money can be saved just by keeping your current employees happy.
To illustrate it, try to calculate the cost of turnover:
Cost of Turnover = Number of Employees Leaving × Average Cost of Replacement
- Specific objective:
To understand how effective your recognition program is in reducing employee turnover. This metric is calculated using a simple formula:
Retention rate = (Number of employees at the end of the period / Number of employees at the start of the period) × 100
For example, if you started the year with 100 employees and ended with 90, your retention rate would be 90%.
- Key Metrics:
The key metric here is the retention rate itself, which can be supplemented by turnover and new hire attrition rates:
Turnover rate measures the percentage of employees who leave your company during a specific period.
Turnover Rate = (Number of Employees Leaving / Average Number of Employees During Period) ×100
For instance, if 10 employees left during the year and the average employee count was 100, the turnover rate would be 10%.
New hire attrition rate specifically tracks the turnover rate of employees who are new to the company, typically within their first year or the designated probation period. Measuring this helps show how effectively new hires are being integrated and retained.
New Hire Attrition Rate = (Number of New Hires Leaving During Probation / Total Number of New Hires) × 100
For example, if you hired 50 new employees and 5 left during their probation period, the new hire attrition rate would be 10%.
- Data Collection:
Collect data on the number of employees at the beginning of the period and the number of employees remaining at the end of that period. You should also track when employees leave and categorize those departures (voluntary or involuntary) to refine your retention strategy.
Participation and Redemption Rates
You can create a complex employee rewards program, think it through, spend a lot of effort and resources, but it will turn out to be neither interesting to nor sought after by employees. To prevent this from happening, regularly assess participation and redemption Rates.
- Our goal:
To understand whether employees are interested in the rewards offered and whether they are having the intended effect.
- Key indicators:
It's best to look at the number of rewards used and offered. Include who uses which rewards and what types are most popular, and at what times they are most often used.
- Data:
Collect data on each reward redemption and the total number of them available. This data collection should be ongoing to capture trends over time, especially in response to changes in reward offerings or eligibility criteria. Calculate participation/redemption rates using the formula:
Participation/redemption rate = (Total number of rewards redeemed / Number of rewards offered) × 100
For example, if 150 out of 200 rewards offered were redeemed, the participation rate would be 75%. Thus, we can see how actively employees are participating in it.
ROI
ROI shows whether it is worth the time and resources to implement an employee recognition plan.
1. Specific goal:
If the primary goal is to increase retention, a successful outcome will be to reduce employee turnover. The ROI will be the dollar amount you will gain from this improvement.
2. Key Metrics:
While it would be tempting to track all employee engagement metrics, your definition of success will be clearer if you focus on one or two. Using our previous retention example, the HR metrics we want to track are turnover rate, retention rate, and new hire attrition.
3. Data Collection:
You will need a cost baseline to measure against. In our example, the cost of employee turnover includes the cost of recruiting to replace employees as well as the cost of lost productivity while a position is vacant or a new employee is in training.
4. Program Costs:
List all costs, including software, rewards, administrative costs, and any other associated costs. Be sure to include both the one-time costs of setting up the program and ongoing operating costs.
If you are doing the ROI calculation as a projection, you can set a budget for yourself. How much do you want to spend? What amount do you think would be effective? Some companies spend up to 10% of payroll on employee incentives, but the average is around 2%. You also need to decide how you will spend your budget and what incentives or rewards you will offer.
5. Calculate profitability:
Calculate the total cost of recruiting and hiring employees for the period before and after implementation.
The general consensus is that the cost of replacing an employee is at least six months and no more than nine months of their salary. If you had to replace five fewer employees in the year after implementing your recognition program than you did before it, your revenue would be:
5 X ACR = Employee Replacement Outlay (ERO)
Naturally, if your staff has grown significantly during the period in question, you may have more people leaving than before, but your turnover rate may still be better. In that case, consider employee replacement costs as a percentage of total payroll to make sure you're comparing apples to apples.
6. Subtract costs from benefits:
Once you have determined the cost and the monetary value, you can subtract the costs from the benefits to get a dollar ROI. To calculate the percentage return on investment, the ROI formula is as follows:
ROI = Net Income / Cost of Investment x 100
The result will give you a percentage representing the rate of return. If the result is greater than 100, then the program has generated a positive return on investment.
Take into consideration the time period for which you are calculating. Short-term ROI includes initial costs and may differ significantly from long-term ROI.
While it is important to calculate financial ROI, you must also consider the non-financial benefits, such as improved morale and workplace culture of recognition. These aspects may not be consciously factored into the ROI calculation, but they contribute to the overall success of the organization.
Conclusion
Recognition and rewards programs are just one of the tools used to influence and increase the company's revenue. Implementation of these programs is a rather labor-intensive process so, before you start, weigh the pros and cons and consider whether your business needs it at this stage. The calculation framework and formulas in this article will help you make an informed decision and achieve your goals.
