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The Top 5 Questions about the ROI of Employee Recognition

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Updated on 

June 11, 2024

11

 

June

 

2024

In some arenas, ROI is pretty straightforward: If you buy $100 of stock in a company and sell it when the value doubles, your ROI is 100%. But in other areas, it’s a bit more complex. If you buy a house for $100,000, spend $10,000 on improvements, and sell it 20 years later for $400,000, you could say that your ROI is 360% and call it a day.

But what if your improvements created a rental space, resulted in energy savings, decreased the risk of accidents, or otherwise improved your quality of life?

Employee recognition ROI can feel similarly squishy, at an even greater scale. (Just like a real estate investment, an investment in recognition can achieve both clear-cut and transitive returns—think retention, resilience, and innovation.) But seeing an ROI on recognition is an achievable and worthy goal. We’re here to help you get started by answering some common questions about the ROI of an employee recognition program.

First things first:

What is the ROI of employee recognition?

For some organizations, a return on investment for their recognition program is simply an improvement in how much recognition is given and received. For others, it’s increased connection and collaboration. And for others, ROI is all about the impact of recognition on metrics like attrition, engagement, and productivity. So, which of these organizations has it right?

They all do. When it comes to recognition, ROI is more than a simple equation comparing dollars out to dollars in. Instead, it describes a variety of data that organizations can use to determine recognition’s impact on various aspects of their business—and those areas of focus may differ from one organization to the next.

At O.C. Tanner, understanding that every company has unique challenges and goals, we start with a broad view of ROI (what are all the possible desirable outcomes of employee recognition?) and then divide it into 3 categories for measurement and assessment:

  • Employee experience impact: How does recognition affect your employees’ day-to-day experience with your company?
  • Culture impact: How does recognition affect workplace culture?
  • Business impact: How does recognition affect key business metrics?

As you prepare to determine the ROI of your recognition program, start by asking which metrics and areas of impact are important to your business.

Does employee recognition impact financial outcomes?

The short answer: Yes. But let’s unpack it a bit. Done right, employee recognition can impact a wide range of metrics, including productivity, retention, and revenue—all of which directly affect your bottom line.

Here are a few proof points:

When employees are recognized and appreciated for their efforts, they receive a strong message about their role in your company’s success and feel motivated to continue delivering efficient, high-quality work. This creates an upward feedback loop where employees stay longer, build skills, share knowledge, and drive value.

But as we’ve noted, business metrics are just one aspect of your organization that employee recognition can impact. On the surface, employee experience and company culture might seem like nebulous, difficult-to-quantify concepts, but a closer look shows that these areas have very real financial consequences.

Recognition can create positive employee experiences across your organization every single day, from personalized onboarding to thoughtful feedback from leadership to a sense of belonging on teams.

And it has myriad benefits for workplace culture.

A hub and spoke graphic showing the impact of a thriving workplace culture on purpose, opportunity, success, appreciation, wellbeing, and leadership.

When employee experiences are positive and workplace culture is strong, engagement is high, correlating to:

  • 81% lower absenteeism
  • 64% fewer employee safety incidents
  • 58% lower patient safety incidents in healthcare facilities
  • 41% lower quality defects in manufacturing units
  • 18% higher productivity
  • 23% higher profitability
  • Higher earnings per share

How much do I need to spend on recognition to see results?

To be frank, if we’re talking about cold, hard cash, you don’t NEED to spend anything on recognition in order to see results. But you will need to spend time and effort, and the results are markedly better if you do spend money on employee appreciation.

For maximum impact, companies investing in employee recognition should expect to budget between $200–$350 per employee per year. Any less creates diminishing returns on your investment.

When organizations invest $250 per employee per year for recognition, employee engagement increases 21% compared to companies that don’t invest in employee recognition at all.

But it’s important to note that it’s not just the dollar amount that matters. It’s how you use those dollars. Small, personalized, frequent recognition experiences are much more meaningful and valued—and have a more lasting impact on workplace culture—than large, standalone, company-wide events, regardless of  spend.

An employee recognition platform that makes it easy and cost-effective to give awards and gifts as well as frequent, non-monetary appreciation can increase your recognition integration and your ROI.

How do I measure the impact of employee recognition?

The way you measure impact depends on the type of ROI you want to see. Which metrics and areas of impact are important to your business?

Employee experience impact

If your goal is to improve employees’ recognition experience, you’ll want to look closely at things like recognition program adoption, engagement, and satisfaction. Analytics and impact dashboards can give you deep insight into program usage by tracking recognition through various lenses, including unique givers, recognition type, business unit, and time period, while pulse surveys can help you gauge employee sentiment about your program.

An image of the Culture Cloud Flight Risk Dashboard, a reporting tool that assesses employee engagement and sentiment

Culture impact

If a cultural transformation is your top priority, you’ll want to start by gaining a solid understanding of your culture as it currently exists, using qualitative and quantitative research.

Remember those six elements of a thriving company culture (purpose, opportunity, success, appreciation, wellbeing, and leadership)? Dissecting these elements using pulse surveys, interviews, systems data, and other research tools will paint a picture of your company’s cultural health and help you establish a benchmark for comparison.

Business impact

If you’re targeting specific business metrics, measuring ROI is often as simple as blending data from your HRIS, LMS, and/or CRM with recognition data. How does recognition correlate to absenteeism, engagement, or skill-building? For even more tailored views, O.C. Tanner can work with you to create custom reporting that  targets outcomes as specific as sales revenue, customer satisfaction, and safety.

See our Guide for HR Leaders and Executives for more in-depth information on measuring the ROI of employee recognition.

How can I increase the ROI of my recognition program?

The first steps to increasing your employee recognition ROI are 1) identifying the culture, business, and employee experience issues you’d like to target and 2) creating a strategy for addressing those issues with recognition.

Your strategy will depend on the issues you’re going after, your budget, and the complexity and nuances of your organization, but there are some recognition best practices that apply across the board.

Ensure recognition comes from a variety of sources.

Employees should receive recognition from both peers and leaders, celebrating both individual and group accomplishments.

An image of peer-to-peer recognition options in the Culture Cloud platform.

Provide a variety of recognition experiences.

Offer a mix of verbal appreciation, tangible rewards, practical gifts, symbolism, and both monetary and non-monetary recognition.

A photo of a Careerscape, a symbolic workplace award that allows employees to collect meaningful custom icons

Make recognition personal and authentic.

Recognition has the greatest impact when it considers employees’ preferences, is relevant to the occasion, and represents your company’s values. Your recognition program should be flexible enough to enable personalized messages and custom branding.

Photos of a custom employee Yearbook commemorating a workplace anniversary

Make recognition equitable.

You’ll get the biggest bang for your buck if recognition reaches every employee. Ensure you’re accounting for all regions and all types of workers.

Measure, assess, and adjust.

Measuring program impact is key, but it’s also important to analyze the data and apply your learnings for continuous optimization.

An image of GE’s ‘Recognize YOU’ recognition program interface

Consider this example: GE Appliances wanted to increase engagement and decrease turnover, particularly in their often-unseen support functions, a wealth of institutional knowledge. After determining that their current program wasn’t achieving the desired impact on their target metrics, the company decided to make some big adjustments.

They launched a new recognition program on the Culture Cloud platform, taking strategic aim at their areas of interest.

After a year, engagement survey scores showed that when employees had received recognition in the prior month:

  • The risk of attrition decreased by 58%.
  • Employee perceptions of opportunity for growth and development increased by 108%.
  • Positive perceptions of leaders increased by 180%.  

As Natalie Snyder, the Senior Director of Compensation and Benefits says, “We get all the good stories and positive comments, but the data is key.”

Read more about the ROI of recognition at GE Appliances.

The Culture Cloud employee recognition platform features built-in measurement tools that help organizations translate recognition data into impact and ROI. For a deeper dive, the Culture Cloud research and assessment team will partner with you to identify recognition targets and develop strategies for continuous optimization.

93% of O.C. Tanner clients see measurable employee recognition ROI in the first year.
—Tech Validate

Ready to tie recognition to results? Contact us here or call your O.C. Tanner representative.

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