Employers spend a lot of money on employee recognition. It has ballooned into a $46 billion market, with many employers spending as much as 1-2% of payroll on rewards. Any other line item of that size would be carefully monitored to make sure it returned an acceptable ROI. Employee recognition programs, however, rarely receive this kind of scrutiny. But, considering the amount of money spent, it’s important to ask: Do these programs work?
The answer is a resounding yes – if the programs are administered correctly. Businesses with effective recognition programs:
- Experience 31% less voluntary turnover than those without
- Rank 14% better on engagement, productivity, and customer service than those without
- Have a Return on Equity that is three times that of companies with lower recognition scores
- Have an operating margin six times that of lower-scoring companies
- Experience 28.6% lower frustration levels than companies without such programs
- Have employees who are 25.4% more likely to understand the company’s business objectives
- Have employees who feel 21.5% more enabled to achieve these objectives
That’s pretty impressive, but you won’t see those results with just any recognition program. Employee recognition based on tenure, and “employee of the month” programs can be demotivating. On the other hand, strategic recognition programs – those based on rewarding employees for behaviors that further the company’s goals and objectives – see very positive results:
- 37% of businesses with strategic recognition programs report employee engagement rates of 72% or better, versus only 25% for those without strategic recognition programs.
- Companies with strong peer-to-peer recognition programs report a 57% increase in employee engagement, a 41% increase in customer satisfaction, a 32% increase in customer retention, a 32% increase in productivity, and a 28% increase in employee retention.
- Companies that emphasize peer-to-peer recognition are also 35.7% more likely to see a positive impact on their bottom line, and are 11.5% more likely to report increased employee engagement.
- Of companies that spend more than 1% of payroll on employee recognition programs, 85% reported improved employee engagement, compared to 74% for those who spent less than 1%.
- 59% of companies that spend at least 1% of payroll on employee recognition say they’ve seen a positive impact on their bottom line.
- 77% of companies that spend at least 1% of payroll on employee recognition say the programs help reinforce company values.
- 61% of companies that spend at least 1% of payroll say their employee recognition programs increase employee retention.
Employee recognition works, positively impacting everything from turnover to engagement to customer satisfaction – not to mention the bottom line. To be effective, however, it has to be strategic, directly linking employee behavior to organizational goals and values. In addition, larger investments yield more impactful results. Unfortunately, most employee recognition programs – a full 87% – are based on tenure, and are only loosely connected to performance. Businesses with tenure-based awards would do well to focus on – and reward – behaviors that directly further the company’s business objectives. These rewards are more meaningful for employees, and offer a better ROI for employers.