Incentive programs 101
July 17, 2018
Thinking about an incentive program for your employees but not sure where to start?
Or, perhaps you’re not sure how to measure the program once it’s launched.
Both are legitimate questions.
Maybe you have seen some attractive statistics on incentive programs and are excited about the potential for your organization’s ROI, but need some clarification on what you are about to get yourself into. So, let’s jump into what exactly this thing called an employee incentive program is and how you can measure its effect within your organization.
Incentive programs arose as a response to common business concerns such as employee absenteeism, dropping productivity levels, and high turnover rates. These programs use positive reinforcement to convey company appreciation, comprehensively influencing company culture, employee engagement, and the staff behaviours your company values most. A critical factor in the success of an incentive program is that all recognition criteria is unambiguous and built on measurable actions or achievements. That said, the program’s malleability means no two companies must have a program that is alike.
Although their end-game intention is the same, incentive programs are flexible. While rewards programs use gifts that come at a cost to the business, recognition programs are rooted in psychological approaches such as public acknowledgment or an employee of the month board. Both approaches can extend beyond individual performance criteria to include team or department outputs, adding an additional level of specification. The customizability of your program ensures that the specific needs of your organization are directly targeted and leave room for adjustments as needed throughout the program’s life-cycle.
We talk a lot about the benefits of incentive programs, but as a business owner or company executive, you are rightfully concerned with whether you can quantify the results. The short answer to whether these programs are quantifiable is ‘yes’!When it comes to measuring the cost of your program and its benefits, the more data you have the better. Measuring your employee rewards and recognition will either validate the program’s effectiveness, reception, and profitability or address ineffective areas for revaluation. You should also be able to determine whether employees feel valued specifically from the program and the per-employee cost of the benefits.
The basic methodology for evaluating your program’s ROI is as follows:
- Decide what metrics you’ll evaluate—these should be based on your program’s goals. For example, if your goal is employee retention, then determine your current retention / turnover rates and the associated costs. This will be act as your baseline for evaluating future improvements. For metrics such as employee engagement, you may need to complete a pulse survey before launching your program.
- Determine your annual costs. Calculate the cost of rewards given to employees separately from those related to program. Add the total amounts expended for cash awards, incentives, bonuses and other payments and divide that figure by the number of employees to determine the per-employee cost for your company's employee rewards and recognition. For example, if your company awarded 10 employees each an annual bonus for $2,500 and your employee base consists of 150 full-time employees, the average cost budgeted for rewards is $25,000 divided by 150, which equals approximately $166 per employee.¹
- At the time intervals appropriate for the metrics you are measuring, compare any improvements to your baseline. Have your costs of employee turnover gone down? If so, by how much? Now divide this improvement by the cost of incentives awarded over this period to get your ROI.
Remember to regularly evaluate your program and stay open to shifting things around. At the end of the day, you are aiming to make your staff feel more appreciated and motivated, so there will always be human factors to be addressed as you go.
Looking to spruce up your existing incentive program? Qarrot can help you with that!