Companies implement employee rewards programmes because they believe they can produce a positive ROI.
Aside from making their teams feel appreciated for all their hard work, companies implement employee rewards programmes because they believe they can produce a positive ROI.
Ideally, rewards and incentive structures lead to higher retention rates, decreased turnover, increased employee satisfaction, and a greater sense of purpose in the workplace. All of these benefits can put figurative dollars into a company's pockets, but the big question is how, and how much? How are you to determine that employees are sticking around longer because of your impressive rewards programme and not the shiny new espresso machine in the break room?
Read on to find out how to calculate your programme's ROI, and what you can expect along the way.
Before you begin
Doing your due diligence before implementing your incentive structure is an essential part of ensuring a satisfactory return. This means researching the types of programmes other companies have put in place and finding common threads that run between them.
Bear in mind that you don't necessarily need to cast a wide net; simply take a look at a handful of successful organisations in your field or industry. Their vision and values are most likely to align with your own, and they are also more likely to have employees with similar profiles.
A simple equation
One of the simplest ways to measure the ROI of your incentives and benefits is to look at the cost of the programme versus the cost of employee turnover. The calculation is simple.
First, determine how much it costs the company each time a team member leaves and must be replaced. You can base this number on either their salary or their position. The dollar amount is very likely to vary by role for example, it costs more to replace and train a new CFO than a research analyst so you may want to turn out a few different figures to make sure the benefit strategy works globally. Then, use the following formula to calculate the ROI of your programme:
[(Payback Investment)/ Investment)] x 100
In this formula, the "investment" is the cost of the employee incentive structure, and the "payback" is how much you've saved by implementing the programme compared to paying for new employee training and hiring. While the equation itself is simple, you may need to put a little time into defining the figures behind these two variables but once you do, getting clarity on your ROI will be well worth the effort!
A 7-question path to evaluating your programme's ROI
To collect all the information you need to fuel your calculations, you can conduct a multi-step deep dive into your programme's effectiveness. Inspired by an ROI measurement guide in Incentive Magazine, here's our boiled-down approach to calculating the value of your employee rewards structure.
1. What problem am I trying to solve?
No two companies are alike, and the same goes for their internal issues. While some organisations struggle with hitting their sales figures, others are more concerned about achieving their overall KPI's. Step one is to pinpoint your core issue, then begin brainstorming a list of relevant motivators (you can also ask our experts for help).
2. How much is this problem costing the company?
The answer to this question will vary quite a bit depending on the issue you've identified. For example, you might need to evaluate how much your sales figures are falling short, or how much it costs to train a new employee.
3. What are your objectives?
For this step, the key is to identify achievable, measurable goals that are easy to follow up on (quarterly, annually, etc.). The idea isn't to shoot for the moon it's to figure out where you'd like to end up as a result of this rewards programme in tangible, concrete terms. One or two core objectives will do.
4. How much will the rewards programme cost?
To maximise your ROI, you'll want to manage how much you're spending on your employee rewards structure. It's got to be worth it! You should estimate/calculate this figure based on quarterly or annual expenditures to keep things simple.
5. What kind of data should you collect?
Valuable data starts with a solid "control group." Make sure you collect goal- and KPI-specific information from before you kick off the programme, then compare it to the post-implementation data you collect (once again, either on a quarterly or annual scale). Going in prepared is the key to nailing this step.
6. What do you do with the data once it's collected?
A simple comparative analysis of the data you collected both pre- and post-implementation is guaranteed to be illuminating. If you're not entirely sure about the raw dollar value of certain data elements, don't be shy to ask your colleagues in the finance or accounting department for help.
7. How do you determine your final ROI figure?
Using your newfound well of data from past and present, plug it into the equation we provided above, and you'll have your number!
Remember ROI isn't always an exact science!
When it comes to measuring the effectiveness of an rewards programme, it can be tough to nail down a specific figure. There may be certain factors or costs that are difficult to define depending on your goals, so you should try and establish objectives that are as clear and measurable as possible to avoid roadblocks.
One fundamental way to maximise your incentive structure's ROI is to make sure your employees understand its value. Be open, communicative, and enthusiastic about the incentives and rewards that are on the table that way, not only will your team get the most out of your programme, but so will your company.
Another great method for maximising your ROI is to partner up with a company that specialises in employee rewards. The experts at Power2Motivate know how to build a structure that's tailored to your specific needs, goals, and teams for the best possible results. Now that's something you can take to the bank!