Employee recognition and rewards (R&R) programs play a powerful psychological role in boosting team member engagement, productivity, and retention. But how can HR teams calculate the true ROI of their recognition and rewards investment?
Although technology makes these programs cheaper and easier to run than ever, any program still represents an investment that needs to be justified. The ROI of employee recognition and rewards programs typically falls into three categories:
- Company ROI (retention savings, cost consolidation, revenue per employee)
- People metrics ROI (engagement scores, participation rates, tenure data)
- HR team ROI (time savings, admin reduction, program efficiency)
Within these three key categories, recognition and rewards initiatives or software platforms have been proven to impact the following:
- Employee Retention
- Cost Savings
- Employee Engagement
- Profitability
- Productivity
- Health & Wellness
- Customer Success
- Time Savings
This article covers four of the most important ROI outcomes in depth. HR leaders building a business case for their CFO are welcome to use any of the figures below directly in their presentation.
1. Improved Employee Retention
Employee turnover is expensive and drags down productivity. According to Gallup, the cost of replacing one employee can range from 1.5-2X the employee's annual salary. High turnover can, therefore, get pricey very quickly. A 100-person organization that provides an average salary of $50,000 could have turnover and replacement costs of approximately $660,000 to $2.6 million per year, according to Gallup's statistics.
In order to reduce attrition and retain employees, many companies choose to invest in employee Recognition & Rewards programs or software. Companies with recognition programs have 31% lower voluntary turnover than those without such programs (Bersin).
In fact, one WorkTango customer, Arrowhead, reduced turnover by 49% after implementing WorkTango.
Retention numbers look even better when you zoom in on the employees who are regularly recognized. Employees who are recognized are almost six times more likely to stay at their jobs than those who are not recognized.
WorkTango anonymized and then analyzed the activity and tenure data of tens of thousands of its platform users and discovered the following:
- Employees who actively participated in their company's recognition and rewards program saw a 1.29 year increase in their average tenure.
- Employees who do not actively participate in their company's recognition and rewards program had a 1.44 year decrease in their average tenure.
If your organization is looking to improve employee retention, we recommend first establishing a baseline of what retention looks like at your organization today. Once you implement an employee recognition and rewards solution, track employee retention on a quarterly basis. After one year, analyze how retention has changed overall and within individual departments since the launch of your program.
2. Cost Savings
Amidst today's economic uncertainty, many organizations are reluctant to invest in new initiatives. However, most organizations already have some type of employee gifting or appreciation budget in place.
On average, switching to a consolidated Employee Recognition & Rewards platform saves organizations 15-20% on existing rewards budgets.
- One WorkTango customer, Emmaus Homes, saved $25,000 USD when they consolidated their spend within a centralized rewards program. Instead of ad hoc efforts and spend across individual departments, they were able to track and manage their rewards budget far more efficiently once it was consolidated within a single platform.
- Another customer, Arrowhead, benefited from a 40% savings on their rewards budget after implementing WorkTango.
Slimming down total rewards budgets is not the only way organizations save when they adopt employee recognition and rewards software. Evergreen Home Loans reduced its recognition and rewards program admin costs by what amounted to the salary of a part-time employee ($30,000 USD) once it deployed the WorkTango platform. Built-in automation, a centralized Employee Rewards Marketplace, and efficient reporting saved the HR team time and the organization dollars.
To gain an accurate estimate of how much your organization spends on employee recognition and rewards today, reach out to department heads and managers across your organization. If rewards and spot bonuses were not previously centralized, be prepared to chase after individual leaders to obtain recaps of what they spent last year. Once you have a baseline of how much was spent, set a centralized budget for the new program, and then track the delta year-over-year to calculate savings.
3. Increased Employee Engagement
It should come as no surprise that people like to work for organizations that make them feel appreciated and valued. In fact, 81% of employees say they are motivated to work hard when their boss and peers show them appreciation.
To dig a bit deeper into this sentiment, HR.com and WorkTango partnered on a research report in late 2022 that surveyed 275 HR professionals about the state of employee engagement at their respective organizations. The results of the survey indicate that engaged employees perform better than disengaged employees. In fact, 96% of HR professionals agreed that solid evidence exists linking engagement with employee performance and success.
Employee engagement is 14% higher in companies that have recognition programs, says Deloitte. It turns out that employee recognition and rewards programs boost employee engagement. And improved employee engagement, according to the data, boosts performance and company success. Fortune demonstrated that companies labeled as Best Places to Work have shares that grow 3x faster than other S&P 500 companies.
To accurately measure employee engagement, we recommend a blended approach of using technology to:
- Field bi-weekly pulse surveys
- Run quarterly engagement surveys
- Establish an ongoing way for employees to submit feedback to leaders
We also recommend implementing Weekly employee-manager Sync-Ups, as managers are best positioned to spot early signs of disengagement before it leads to attrition.
4. Improved Customer Service
HR.com and WorkTango's Future of Employee Engagement survey also found that employee engagement has a positive impact on a number of organizational outcomes, with almost three-fourths of HR professionals saying it improves customer service (72%) and over two-thirds saying it improves productivity (71%), retention (70%) and well-being (69%).
Data from SHRM backs this up. 35% of companies with formal employee recognition strategies see an increase in customer satisfaction. Employees who feel connected to their company and motivated to bring their best selves to work each and every day excel in customer service.
RBFCU, a WorkTango customer, saw a 68% increase in its employees hitting high customer service scores after implementing a formal Employee Recognition & Rewards program.
Most organizations track NPS, but we recommend tracking Employee Net Promoter Score (eNPS) as well and correlating the two numbers to identify any significant trends. Establish a baseline for both metrics prior to implementing an Employee Recognition & Rewards program, and then keep track of how those figures change after the program has been running for 6 months, 12 months, and 18 months.
Putting it all together
Employee recognition and rewards programs deliver measurable returns across retention, cost savings, engagement, and customer outcomes. The data is consistent and spans industries: from credit unions to manufacturing companies to SaaS businesses.
If your organization is not yet using a formal Recognition & Rewards program or a unified Employee Experience Platform, the evidence above represents the cost of inaction, not just the upside of adoption.
See the ROI model: WorkTango's ROI of EX Software Research Report walks through the full calculation framework, including the three pillars of EX ROI and benchmark metrics by company size.
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