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.

Employee expectations shifted significantly in the last decade. The best companies in the world adjusted to this shift through the power of people-first cultures — work environments where employee happiness matters 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 shows that organizations with highly engaged employees are 21% more profitable than organizations that 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 of customer satisfaction. The Aberdeen Group identified employee engagement as a key differentiator and driver 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 a 25-65% reduction in turnover. It costs $4,129 on average to hire new talent, and around $986 to onboard. In total, each exiting employee costs over $5,000; not to mention, the unquantifiable cost of losing an experienced employee.
• Sustainable engagement is linked to better financial performance. Research by Willis Towers Watson shows that 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 over 300 clients globally, we see organizations of all types achieve high-performance cultures:

• Our clients experience an amazing 99% activation rate, and many organizations reach utilization rates above 90% per month  
• Our enterprise clients see the quantity of recognition in their organizations  increase by 2.5 times over several years on the platform
• Our enterprise clients reduce 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

Organizations that pursue, and win, “Best Place to Work” (BPTW) awards consistently outperform their 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 and 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 implementing employee engagement programs.

The difference between winners of Fortune 100’s Best Places to Work and Glassdoor's Best Place to Work comes down to four common best practices:

• Aligning mission and values to goals
• Building a supportive and empowering culture
• Creating a sense of community and connection
• Providing opportunities to learn and grow

Leading organizations reinforce what they stand for by maintaining daily communication with their people. Frequently recognizing, celebrating, and encouraging teams to maximize their potential wins hearts and minds.

Beyond greater emotional investment with your company, higher employee engagement results in best-in-class corporate performance.

Small Investment, Big Results  

As showcased, activating a highly positive culture generates high-performance outcomes. At Kudos, we measure our achievements in seven different areas:

• 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 related costs

You can easily measure return on investment (ROI) in the last two areas: Time savings for HR, reductions in turnover and related costs. Below, we'll focus on the largest and most visible impact on the bottom line — reduced turnover costs.

The ROI of Employee Recognition

Calculate the ROI using 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 these numbers aren’t available to you, feel free to use these benchmarks in your calculations:

• 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 (in other words, between 250% to 700%).

Building Your Business Case for Kudos

Not only is Kudos one of the first organizations to bring social recognition to the market, but also the first company to take peer-to-peer recognition to a more strategic and effective level.

We help organizations drive individual and corporate performance in over 80 countries around the world and look forward to supporting you develop a high-performance culture.