Be careful not to focus too much on the money side of ROI. Examining below and above the bottom line can convert recognition into an investment versus an expense.
When addressing return-on-investment measures on the perceived “softer” aspects of HR management, just remember some key points, especially with employee recognition. One must focus on people and principles and not on the programs.
To prove that HR initiatives are making a difference, the “gauntlet of ROI” is thrown down in front of us to challenge the merits of whatever transformation tool we are considering with ever-more-constrained budgets. Yet there is more to ROI than meets the eye, which is why we will examine ROI to the power of three. It’s more than just money.
ROI1: Return on Impact
Before any financial return is produced, action must first occur. Such goals and activities occur “below the bottom line” and affect it just the same. It is easy to be driven by financial figures and forget to focus our energies on the actions warranted to change things or make an impact. Any quality improvement initiative—Six Sigma-type intervention or other process improvement tool—will drive positive impact for people whether they are internal or external customers. When processes improve, business improves as well.
Improvements can include financial savings or revenue generation, time and technology usage reductions, or pure idea generation and innovative product suggestions. Each will influence perceptions and create positive consequences on work practices of your people. Surely such impact becomes a powerful retention strategy in itself, which can be correlated with reduced turnover and associated costs affecting the standard ROI.
A key element in the return on impact is to develop quantifiable outcomes associated with the actions or procedures. What will you plan to achieve within a specified time and by whom? The ongoing process of returning and reporting on outcomes associated with these action plans creates the return on impact.
ROI2: Return on Individuals
Employee engagement studies clearly show a strong correlation between the discretionary effort employees are willing to give to a company and the positive financial performance of the organization. This measure of ROI is above the bottom line as a return indicator. It is simply one’s investment in people.
Many organizations with high-performing, talented employees know there is a fine line between providing competitive remuneration and benefits—the total rewards package—and what employees consider as the perks and recognition that can tip the scale to greater retention.
Companies that develop progressive career planning and coaching, ongoing education and development, cross-training and skill enhancement, as well as on-site health and wellness programs, know they are creating essential investment strategies in an organization’s “human capital.” From forward-thinking people to improved employee participation and performance outcomes, investing in people always produces good results.
When you actively promote all of these types of initiatives, you can begin to measure participation within these programs, obtain baseline measures as applicable, and show rates of improvement, achievement, and overall success for each available program. Ongoing follow-up with employees can provide subjective as well as quantifiable indicators on how people are doing and improving. Satisfied employees become magnets for attracting and referring similar quality people, which reduces recruitment costs.
ROI3: Return on Investment
Last but not least is the more typical and expected “ROI,” the investment of monies in a company to produce a fair return to shareholders. It is a very popular metric because of how simple it is to calculate and has become the ominous indicator of whether an investment should be undertaken, continued, or stopped.
From the HR domain, and specifically with employee recognition, people want to know whether it makes a difference. Have specific and planned employee recognition programs improved targeted objectives? A simple way to assess whether an initiative is worthwhile is to simply calculate the net program benefits divided by the recognition program costs multiplied by 100. A positive percentage means you realized a gain from your investment in employee recognition.
ROI3 on recognition must consider the impact on performance and the development of people as well as the bottom-line return on financial investment.