Calculating the ROI of Recognition vs. The Cost of Doing Nothing
Major change often doesn’t happen in one fell swoop. It is the result of handfuls, dozens, even hundreds of tiny shifts leading to a tipping point. It takes patience and investment to reach that tipping point.
Improving the culture of your company qualifies as a “major change.” It won’t happen in a day. It takes time to initiate positive change in the workplace experience. But you can accelerate your efforts with a program designed to scale positive change: social recognition.
Recognition emphasizes workplace tenets like connection, community, and psychological and physical safety. Positive changes will look like better communication and collaboration across departments, fewer safety incidents and sick days taken, and longer average tenure.
Such change won’t happen overnight. It needs patience and investment.
What does good recognition look like?
Our research with Gallup is that recognition is most effective when it abides by five guidelines. Recognition can’t be just a perfunctory “thank you.” It needs to be honest, personalized, and equitable. It needs to be in line with how an employee would actually want to be recognition.
And lastly, it needs to be a organizational habit. Recognition that meets all five criteria is as good as it gets. Recognition that doesn’t? Well, it gets worse the fewer you hit.
How much investment?
We’re glad you asked.
At Workhuman®, we’ve analyzed the performance of customer recognition programs and found that the investment tipping point is 1% of your payroll. You read that right. One percent.
At this threshold, the return on recognition becomes exponential, far surpassing the effects of one-time merit increases.
Where do you see the return?
As recognition investment increases, so do business performance metrics like retention, engagement, and performance.
Recognition connects people and creates a community. A community is a tough thing to walk away from, so you increase your odds of being a desired place to work. Recognition helps people see how their work connects to the goals and long-term vision of the company, so you decrease the chances of employees questioning if anyone even cares what they do.
We’ll let you guess if the employees who feel more connected to their colleagues and more valued for their contributions perform better than the employees who don’t.
So, at the individual employee level, you are strengthening the aspects of work that engage and connect people and reducing what leaves them unmotivated and looking for the exits. Now, let’s see what it looks like at scale.
Compounding returns
Workhuman iQ data modeling indicates that recognition funding at 1% of payroll is the budgetary sweet spot for positively impacting these metrics.
Customers who find this sweet spot have the data to show how sweet it really is.
Cisco has seen a 3x reduction in turnover with frequent recognition, funded at 1% of payroll. Even more impressive, the technology leader has experienced a 4.5x lower flight risk for employees tenured at one to three years who have robust recognition experiences.
FirstTech, whose recognition program is funded at 1% of payroll, has found that employees who give recognition are 2x less likely to leave the organization than those who only receive recognition – and those who receive recognition are 2.5x less likely to leave than those who have never been recognized.
Gallup and Workhuman's research report, Unleashing the Human Element at Work: Transforming Workplaces Through Recognition, shows that a 10,000-person company can save up to $16.1M in turnover costs annually by investing in recognition.
Additional research, From Praise to Profits: The Business Case for Recognition at Work, shows that recognition improves business outcomes through safer workplaces and decreased absenteeism. This translates to a healthier, more productive workplace overall. All these positive shifts add up to something big.
Future-proofing your business with Human Intelligence
Each week brings a flurry of recognition moments. That flurry is a double-edged sword. It’s great that employees are collaborating, celebrating achievements, and reaching milestones across the organization.
But it can be a lot to keep track of, and employees can end up feeling lost in the shuffle. Recognition messages that would have clued you in on who was a top performer or who has developed new skills are lost to the ether.
Not anymore. With Human Intelligence, those insights are constantly at your fingertips. After delivering an impactful boost to employees, recognition messages highlighting specific efforts, skills, and competencies then serve as valuable data points for promotions, team building, mentorship, and more.
One of the greatest returns on your recognition investment is that talent management is no longer a guessing game.
Investments are not costs
Recognition programs get categorized as a cost, but really, they’re an investment. You are investing in your people. The cost comes in not doing anything at all.
When employees are empowered to participate in the recognition and reward process, the result is more engaged, higher-performing employees. They feel seen and valued for their individual and collective impact on the business, and they shape the organizational culture.
An organization that prioritizes recognition and gratitude in the workplace or one that doesn’t, which would you rather lead?
It’s time to recognize the power of gratitude. Learn how Social Recognition can empower employees.
Workhuman is the #1 provider of employee recognition software. When you opt for recognition done right from Workhuman, you don't have to settle for second-rate recognition.
About the author
Mike Lovett
Mike is a senior content marketing specialist at Workhuman where he writes about the next era of the workplace. Outside the workplace, he’s an avid gardener, a frequent biker, a steadily improving chef, and a fantasy sports fanatic.