How to set up an employee recognition program and prove its ROI

The first step to creating a robust employee recognition program is getting it up and off the ground.

Too often, such plans get shuffled to the back burner as management focuses on other aspects of a business, unknowingly making their lives harder in the process. 😔

According to a report released by the Society for Human Resource Management (SHRM), about two-thirds of HR professionals agree that employee recognition helps with retention.

As you already know, keeping top talent is a massive boon to your company. Failing to do so means more time spent searching for new employees, more money training those employees, and more headaches all along the way.

In fact, according to the US Bureau of Labor, about three million Americans voluntarily quit their job every month—that’s a lot of retraining on the monthly!

Instead, by investing as little as 1% of your payroll into employee recognition programs, you can create a positive company culture that praises employees who are rockstars while encouraging others to join them.

According to the SHRM report, about 70% of organizations that have an employee recognition program align it with their company values, while 59% have it tied into their talent strategy. More importantly, 69% of employees stay with their current employer because of recognition and rewards.

View more stats like this in our Peer Recognition Programs one-sheeter.

In other words, these perks matter to people.

Not only do these employee perk programs help your bottom line with regards to retention—they also impact employee engagement.

Unfortunately, according to a Gallup study, about 70% of the U.S. workforce is considered either “not engaged” or “actively disengaged”. Another related Gallup poll revealed that such disengaged employees cost companies up to $550 billion annually.

Though it might not feel as pressing as the day-to-day operations of running your business, an employee recognition program can help you take your company to the next level. Thankfully, it’s not too hard to get a quality, deeply-integrated employee recognition program in place.

And better yet, once you do, you’ll also be able to quickly identify its ROI.

Establish a business case for your employee recognition program

The first step toward establishing a culture-boosting employee recognition program is making a strong business case to yourself, leadership, or your board.

Sure, most companies would love to give every employee a free car (cue Oprah), but they also realize that in doing so, they would sink their business.

Instead, start building your case by identifying what problems you can solve through an employee recognition program, as well as how addressing these issues will meet company objectives.

The best way to do this is to take a deep dive into the literature and get a handle on the research-based benefits of employee recognition.

According to Forbes, about $46 billion is spent on employee recognition programs annually, yet 87% of such programs are focused on tenure. And, despite these programs rewarding folks for just sticking around, Forbes found that they had no significant impact on performance.

That’s not money well spent—obviously.

However, companies that took a more modern approach to employee recognition programs were much more effective.

Forbes research concluded that “companies that scored in the top 20% for building a ‘recognition-rich culture’ actually had 31% lower voluntary turnover rates”.

Identify the goals of your employee recognition policy

Once you’ve presented your case and gotten the green light for setting up an employee recognition program, you’ll want to establish some goals.

It's easiest to achieve these goals when they’re tied back to established, positive aspects of your company culture, with a measurement that involves metrics you’re already tracking.

These established metrics will serve as a baseline that will allow you to chart changes based on your employee recognition program.

All effective employee recognition programs do several things:

• Meet employee needs
• Reward desirable behavior and actions
• Are entirely fair and inclusive
• Are meaningful, flexible, timely, and relevant
• Don’t break any other company rules or regulations

Talk to employees

Nothing is worse than the top-down implementation of an employee recognition program that launches without recognizing that employees should have a say in what the program looks like.

Don’t start getting employees hopes up before you get the green light, but once you do—talk to them (and listen).

Overcommunication is better than not enough communication—and don’t assume that just because you’re embedding all of your energy into putting this into place, that means everyone will use it. Although more time-consuming, making your employees part of the process will increase their engagement with the program once it’s launched. Getting them in on the ground floor means you’ll be able to better identify what rewards and forms of recognition will resonate most with them.

If you’ve got too large of an organization to chat with every employee independently, you can use SurveyMonkey, Zoomerang, FluidSurveys, or any other popular survey tool to poll their opinions.

Clarify the criteria for recognition

One place employee recognition programs can fall flat is when criteria is not clearly defined.

Lack of clarity around criteria for recognition undermines moral as it leaves some employees believing that they aren’t being treated fairly—which is not the point of any such program.

Additionally, by defining the criteria of the program, you will more effectively encourage positive behavior and support the company culture you’re aiming to create.

How to set up an employee recognition program: identifying which rewards to offer

Though rewards in a recognition program are essential, they don’t have to be expensive. The key is for them to resonate with your employees. 

Standard categorizes for such rewards include:

• Food & drink
• Education
• Fitness & health

Many companies’ favorite rewards are those that promote better lives for their employees, such as fitness or education options. This is because healthy, happy employees are more productive employees.

According to The Wall Street Journal, a recent study established that employees who participated in an employer-sponsored health program in the Midwest increased their productivity by about 4% on average during the following year.

Establishing an approval process for your employee recognition policy

Before establishing an approval process for your employee recognition policy, you’ll want to decide if it’s going to be a top-down, team-based, or peer-to-peer program:

• In a top-down system, management will identify and recognize employees when they meet established criteria.
• A team-based system allows teams to applaud the performance of individual team members, which might require an approval process to ensure that rewards are being given to those who truly deserve them.
• Lastly, a peer-to-peer program empowers employees to recognize their coworkers. Often in these programs, an employee is given a certain amount of money every month or quarter to be used to identify the efforts of their peers.

But how much should you empower users to give to their peers?

Zestful found that the average Peer to Peer balance ($) for users at companies with 1–50 employees was an average of $22/month. Companies with 51–200 employees give an average of $78/month to their peers.

Once you’ve decided on which type of program you will be running, you’ll want to put an approval process in place to ensure that the employee recognition policy and all of its best practices are easily accessed by all employees—and is being implemented fairly.

Proving the ROI of your employee recognition programs

Studies and research are great for pointing you in the right direction when it comes to business choices. However, at the end of the day, you will need to know that your employee recognition program is working for your company.

This is one of the reasons it’s so important to establish clear goals at the beginning. Yes, there could be other auxiliary benefits, but if your stated goal is to lower the turnover rate, then that’s the metric you want to focus on.

Some other metrics you can keep track of are:

• Employee satisfaction: According to the 2018 State of Workplace Empathy by Businessolver, 96% of employees think that demonstrating empathy is important for advancing employee retention. 
• Employee job referrals: According to the American Psychological Association, 89% of workers at companies with well-being initiatives are more likely to refer their company as a good place to work.
• Employee promotions: According to Salesforce, employees who think their voices are heard are 4.6 times more likely to be empowered to do their best work.

After running your program for a significant amount of time, you can compare and contrast where your company stood with regard to your goals prior to the launch of the program and where it stands today.

In our turnover rate example, you can see how the costs of the employee recognition program stack up against the cost-per-hire you have avoided due to increasing your retention rate.

No matter what, proving the ROI of your employee recognition program comes down to continuing to collect data that can help you see and understand the impact the program is having on your company.

Final thoughts: How to set up an employee recognition program and prove its ROI

As companies scramble to meet the new demands of millennials and Generation Z employees in the workplace, employee recognition programs are becoming increasingly popular.

With the right structure and support, employee recognition programs can help you boost morale, reduce turnover rates, and increase productivity.

They’ve even been shown that those who receive strong recognition are 33 percent more likely to be innovative in the workplace.

So, it's time to stop stalling. Use an employee recognition policy to your advantage in order to keep your top talent around.

Not sure what types of employee recognition programs will work best for you? Reach out to the experts at Zestful to get your program off the ground.

Next up: Dive into more data with our free report on workplace wellness in 2020.