Turning HR into a
profit centre
How to calculate the ROI of your
employee recognition program
Recognition is
an investment
Almost every day, Redii is asked for support on the business case
for recognition, so here are answers to one of the most frequently
asked questions by both CEOs and CFOs. How do you calculate
the return on investment (ROI) of employee recognition? How
do you prove that a recognition program - often seen as a ‘nice
to have’ or ‘fuzzy, feel-good option for prosperous times - helps
you become a more profitable, successful business?
according to Aon Hewitt’s 2012 Engagement Database, even
just a 1% increase in employee engagement equates to up to a
2.5% increase in operating income or EBIT.1
What does this mean in $ dollars?
Best-practice
recognition
delivers
10-25%
improvements in
sustained employee
engagement...
frequency behavioral recognition program can deliver over a
Watson have suggested this figure could be as high as 25%. And
Hewitt
so
Wa
t
Global data and research suggests that a best-practice, high10% improvement to sustained employee engagement. Towers
N
AO
n
a
Towe
rs
Recognition increases engagement.
Increased engagement increases
operating income.
nd
and just a 1%
increase leads to
2.5%
increase in
operating income
or EBIT.
So... how would
a modest
increase in
engagement
impact your
bottom line?
Imagine you are 200-person business with a turnover of $100
million and an operating income of $5 million (or 5%, which is at
the lower end of industry averages). According to our statistics,
a reasonably performing recognition program should deliver a
minimum 5% increase in employee engagement over 12 to 18
months. This would equate to a real bottom line cash increase
of $625,000 to $937,500.
What would a Financial Director be prepared to invest or
have at risk for a calculated return of $1 million? $100,000?
$200,000? $300,000? What does your board demand as a
return on capital?
Redii - Turning HR into a profit centre | 2
What to invest in recognition
Research in the US suggests that 1% of payroll is the benchmark
for recognition. A look at Redii client programs would suggest
that Australia is lagging by a long way. If we take the average
salary in Australia as $75,000,2 the average Australian business
is more likely spending just 0.3% of payroll on recognition.
Redii client programs range from spending 0.1% to almost 2% of
payroll. If structured the right way, both program (and budgets)
deliver a positive impact on engagement and productivity.
For the purposes of our example lets assume a budget of just
more than 0.5% of payroll. This, factoring in reasonable risks, can
return x6 - x10 the investment.
Would a x10 ROI satisfy your leadership team? For our imaginary
200-person business that means an annual budget of less than
$100k a year for a powerful, effective recognition program
turns HR into a profit centre.3
Table 1: Example cost of a Redii recognition program at 0.5% of payroll
Redii product or service
Investment
Pulse Survey
$2750
Recognition Project
$3250
Technology Setup
$2000
Monthly Technology and Support Fees
$600*
Monthly cost of rewards
$6500*
Annual program communication
$5000*
Total investment in first 12 months
*ongoing costs
$98,200
Prices updated December 2014. Check redii.com for latest pricing.
Redii - Turning HR into a profit centre | 3
Measuring the impact of
recognition
So the big question is: once we have made an investment in
recognition, how do we understand if it’s having an effect on
engagement? What tools do we have to understand the impact
of recognition?
The great news is that you don’t need an expensive engagement
report to understand if your recognition strategy is working.
Redii’s Pulse Survey measures Employee Net Promoter Score
(ENPS) before we launch a recognition program and 9, 18
and 24 months after launch, should you choose to track your
improvements.
In addition to the ENPS result, the results of your business’
Pulse Survey also includes a Recognition Balance Sheet. Your
Recognition Balance Sheet is Redii’s measure of success and
gives us an indication of how much impact recognition is
having on your employee engagement and culture.
We know that recognition works when it creates a sense of
belonging to a community and generates high levels of selfesteem.5 There are best practice ways to ensure this happens
(see Redii’s resource library for strategies). To ensure recognition
is actually having an impact on individuals, you need to measure
recognition both quantitatively (how frequently recognition
occurs) and qualitatively (where the recognition came from and
how well it was delivered).
A series of questions in the Pulse Survey tells us frequency
and quality and we identify the instances when recognition
was successfully delivered and amplified, and any that was
lost, diluted or misheard. The difference tells us the impact of
recognition.
Redii - Turning HR into a profit centre | 4
Tracking the quality of recognition
gives you the best - and fastest indication of ROI
The Recognition Balance Sheet gives us a baseline from which
to measure the ongoing success of your recognition program
alongside your Employee Net Promoter Score results. Tracking
the frequency and quality of recognition gives you visibility
of progress, as well as the areas in your business that might be
getting more out of the program than others.
Independent research indicates that improvements to key
commercial metrics and customer satisfaction as a result of
improvements in employees’ engagement can take between six
to 18 months to flow through.6 So, while your business might
start seeing and feeling the success of recognition as quickly as
three months after launching, the CEO and CFO can’t report on
commercial results until at least month 12. Using Redii’s Pulse
Survey means your board doesn’t have to wait before you can
start tracking progress.
SURPLUS
A recognition balance sheet in surplus
indicates that recognition is delivering an
engagement and productivity return; it’s
being delivered with enough frequency
and specificity to cause positive changes in
behaviour.
DEFICIT
A balance sheet in deficit indicates that
recognition could be working harder; there
is an opportunity to increase frequency,
improve the way in which it is delivered and
by whom.
Redii - Turning HR into a profit centre | 5
Go from average...
to awesome
Let’s assume that before they launch a recognition program,
Figure 1: THE EMPLOYEE
ENGAGEMENT MIX
our 200-person business has an average score when it comes
research, an average business can only expect about 20% of
people to be True Believers (see Figure 1): people who give the
most discretionary effort and every intention of staying at the
company. The rest are either Stayers or Achievers (60%) - these
people have capacity for greater productivity and connection, or
Underminers (20%) - these people require a significant change
in the organisation to be engaged.
DISCRETIONARY EFFORT
to employee engagement. Based on our Engagement Capability
Achievers
(30%)
Underminers
(20%)
True
Believers
(20%)
Stayers
(30%)
INTENT TO STAY
Given that 60% of this 200-business can be more engaged
at work, and that over half (56%) of a person’s engagement
is influenced by the amount of recognition they receive, a
successful recognition program has the potential to positively
impact over half of their workforce. Imagine what it would mean
to your business’ customer service scores, productivity, profit
and ENPS if you went from having ⅕ to ⅘ employees being
highly engaged True Believers.
True Believers: People who give
the most discretionary effort and
every intention of staying at the
company.
Achievers: Give lots of
discretionary effort but don’t
intend to stay.
Stayers: Give minimal effort but
have every intention of staying.
Underminers: Give minimal effort
and have no company loyalty.
You don’t even have to spend more
money
Contrary to popular belief, a recognition program is not
necessarily going to cost your organisation more money. If
anything, it will make your existing budget work harder and
smarter for you (and get your employees doing the same thing)!
Research by McKinsey & Co shows that a $1000 bonus or pay
increase only shifts employee engagement by 1% but the same
amount of money invested in ‘on the spot’ awards throughout
the year drove a 10% increase in engagement.
Redii - Turning HR into a profit centre | 6
The secret to success is the frequency and immediacy of the
recognition and reward.
Table 2: Traditional vs Redii high-frequency
recognition program structure.
Take a look at Table 2, which compares a traditional recognition
program structure with a Redii recommended program structure.
A budget of $32,800 (just over 0.2% of payroll in our imaginary
200 person business) can be structured to deliver a very formal,
manager driven, nomination-based approach to recognition and
will achieve just 68 instances of recognition per year. That means
that most people, in most teams go home on most weeks with
no experience of recognition.
Alternatively, we can design the program to deliver low value, yet
high frequency recognition that’s left to employees to managers
and achieve more than 1600 instance of recognition. That’s
over 2444% difference in opportunities throughout the year to
engage, appreciate and bump up the morale of your employees.
Every week, everyone is aware of a colleague in receipt of
recognition for the contribution, all within your original budget.
Ready to give it a try?
Contact us to learn more about how Redii can help you set up a
recognition program that creates a happier workplace and more
successful business.
www.redii.com
[email protected]
+61 1300 856 356
Redii - Turning HR into a profit centre | 7
References
1.
2.
3.
4.
5.
6.
AON Hewitt (2012) Engagement Database
Average Australian salary, Australian Bureau of Stastics (November 2013)
Society of Human Resource Management & Globoforce (2012) The Business Impact of Recognition Fall 2012 Report
HR Solutions
RED (2011-2014) Engagement Capability Report
Cook, Sarah (2012) The Essential Guide to Employee Engagement: Better Business Performance
Redii can help you build a recognition program that drives results. Make use of our resources or talk to our team.
www.redii.com
[email protected]
+61 1300 856 356