The ROI of Employee Recognition

Employee engagement is the emotional commitment your people have to your organization. You can achieve high engagement if you pursue a people-first strategy.

In the last decade, there has been a massive shift in employee expectations. The best companies in the world have adjusted to this shift by realizing the power of creating people-first cultures that value the happiness of employees as much as the bottom line. Here's why becoming a people-first organization makes good business sense:

The Impact of High Employee Engagement on your Business:

• Higher employee engagement leads to increased productivity in the workplace. Gallup’s research has shown organizations that have more highly engaged employees are 21% more profitable than the organizations who score lower on engagement.
• Higher employee engagement results in lower absenteeism. Highly engaged workplaces benefit from 41% lower absenteeism, saving roughly $3,600 per year for each hourly worker and $2,660 each year for salaried employees.
• Higher employee engagement is a key driver to customer satisfaction. The Aberdeen Group identified employee engagement as a key differentiator and drive of customer satisfaction.  Organizations that have an employee engagement program enjoy 233% greater customer loyalty.  
• Higher employee engagement equals lower turnover. Gallup reports that organizations in the top quartile of employee engagement see between 25-65% reduction in turnover. With a cost of $4,129 on average to hire new talent, and around $986 to onboard the new hire, this adds up to a total cost of over $5,000 for each exiting employee, not to mention the unquantifiable cost of losing an experienced employee!
• Sustainable engagement is linked to better financial performance. Research by Willis Towers Watson has shown, organizations that achieve sustainable high engagement outperform low engagement companies in their sectors with 18% higher earnings growth.

The Kudos Effect on Your Business

The business benefits are clear if your team is engaged. Kudos is designed to take your engagement to the next level with our platform. With over 300 clients globally, we have seen organizations of all types achieve high-performance cultures. Here are a couple of stats that highlight how our clients, that follow our best practices, are benefiting from Kudos:

• Kudos clients have experienced an amazing 99% activation rate, and many organizations have reached utilization rates above 90% per month.  
• Kudos enterprise clients have seen the quantity of recognition in their organizations increase by 2.5 times over several years on the platform
• Kudos enterprise clients have reduced employee turnover by up to 5x over several years on the platform, achieving over 300% return on their investment

The Best Places to Work Consistently Outperform the Market

The benefits of a highly engaged team are clear when you compare organizations that focus on strategies and tactics that win them "Best Place to Work” awards. Organizations that pursue and win these awards consistently outperform theirs peers and the market. Here is the proof:

• A Jackson Organization study shows that companies that effectively appreciate employee value enjoy a return on equity & assets more than triple that experienced by firms that don’t. Fortune’s “100 Best Companies to Work For” stock prices rose an average of 14% per year from 1998-2005, compared to 6% for the market overall.
• Glassdoor’s study on real-world stock market performance of companies named to Glassdoor’s Best Places to Work between 2009 and 2019 show on average, stocks of BPTW winners earned 20.3 percent per year between 2009 and 2019, compared to 12.9 percent for the S&P 500.

The business outcomes and cost savings associated with high employee engagement paint a clear picture of why forward-thinking organizations are focusing on implementing a variety of programs and tools that are designed to create sustainable employee engagement.

What distinguishes the winners of Fortune 100’s Best Places to Work or Glassdoor’s Best Place to Work comes down to four common best practices:

• Aligning their mission and values to purpose, efforts and outcomes  
• Building a supportive and empowering culture
• Creating a sense of community and connection
• Providing opportunities to learn and grow

This tells us is that leading organizations focus on frequent communication with their people to reinforce what they stand for. Frequently recognizing and celebrating successes (both large and small) and encouraging teams to reach for their potential is the key to winning the hearts and minds, achieving higher employee engagement which results in best-in-class corporate performance.

Small Investment, Big Results  

As showcased, there are many positive business outcomes to activating a high-performance culture. In order to achieve and measure these positive outcomes we focus on these seven measures at Kudos:

• Kudos Activation and participation
• Kudos® Performance Recognition™ Profiles  
• Individual Culture Contribution
• Morale Scores (eNPS, Q12)
• Employee feedback (Surveys and Exit Interviews)
• Time savings for HR
• Reductions in turnover and reductions in turnover costs

The last two measures are areas that you can easily measure the return on investment (ROI). Below we'll focus on reduced turnover costs; this is usually where the largest and most visible impact to the bottom line can be seen:

The ROI of a Employee Recognition

To calculate the ROI you will use the following equations:

ROI = [Savings from Reduced Employee Turnover – Cost of Program] / Cost of Program

Savings from Reduced Employee Turnover = [Cost to Replace Employee + Cost to Onboard New Employee] * # of employee exits that were avoided

If you don't have these numbers for your organization, feel free to use these benchmarks you can use when calculating this for your organization:

• US benchmarks place the cost of turnover at $19,850/employee
• For employee exits avoided, use 45 employees for every 1000 employees in your organization

Did you know? Kudos clients typically see an ROI between 2.5 - 7x (ie between 250% to 700%).

Building Your Business Case for Kudos

As one of the first organizations to bring social recognition to the market, Kudos is now the first company to take the promise of peer-to-peer recognition to a more strategic and effective level. We are helping organizations drive individual and corporate performance in over 80 countries around the world and look forward to supporting your efforts to develop a High-Performance Culture.

If you would like to learn more, give us a shout at sales@kudos.com or drop us a line at 587-955-9191. We’re here to help!

References:

1. Gallup -The Right Culture: Not Just About Employee Satisfaction – Apr 2017
2. Investopia - The Causes and Costs of Absenteeism – Jun 2019
3. Verint - Employee Engagement: Paving the Way to Happy Customers – Sep 2015
4. SHRM - Human Capital Benchmarking Report – Nov 2016
5. Training Magazine - The Industry Report – Jul 2018
6. Willis Towers Watson - The Power of Three: Taking Engagement to New Heights – May 2019
7. Make More Money by Making Your Employees Happy by Dr. Noelle Nelson
8. Glassdoor - What’s Culture Worth? Stock Performance of Glassdoor’s Best Places to Work 2009 to 2019 – May 2020
9. 12: The Elements of Great Managing, Rodd Wagner and James K. Harter, Ph.D.  
10. Mercer - North American Employee Turnover: Trends and Effects – Jan 2020
11. Work Institute - 2019 Retention Report: Trends, Reasons & A Call to Action 

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