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Luc Hédou May 16, 2022 8:19:00 AM 4 min read

The Business Case for an Employee Recognition and Rewards Program

I have written before about The Great Resignation and how a well-designed ERRP can be one of the elements that an organization can implement to attract and retain talent. However, in an uncertain economic climate where business decisions must be made to balance the need to hire to fill the many vacant positions combined with the worrisome economic indicators, cash needs to be spent wisely. Building a solid business case is essential to understanding the benefits of an ERRP as you are competing for cash allocation in your next budget.

Understanding the Benefits of an ERRP

I like to classify the benefits in a business case in three categories:

1. Strategic Benefits

You can clearly show how the benefits of your initiative support the strategic imperatives of the organization

2. Intangible Benefits

The project you are proposing can be linked to benefits that seem obvious, but that are hard to quantify

3. Tangible Benefits

This is the pinnacle of benefits. For most CFO’s the first two, don’t move the needle. If your business case depends on only the first two, your finance leader will likely ask you,” Show me the money!”

Although a strong business case should contain all three, if the tangible benefits are not believable, there is a good chance your project will not get the support to move forward.

Expected Benefits of ERRPs

When one reads what is readily available online on the expected benefits of an ERRP, we are presented with statistics on how such a program improves culture, increases engagement, reduces turnover, and augments productivity. The challenge is how do you show a clear correlation between these positive business outcomes and measurable, tangible benefits? It’s hard to argue that positive changes in a company’s culture and the engagement of its employees are desirable. However, I classify these as strategic and/or intangible benefits. They are the link in the chain before the tangible benefit. The last two, retention and productivity, are what you hope to achieve with a boost in culture and engagement. The graphic below illustrates this point:

Employee Recognition and Rewards Program Business outcomes

Having established that an effective business case requires tangible benefits and that better retention and productivity are categorized as such, how does one use these elements to build a proposal?

The Correlation between Employee Recognition and Retention

For this article, we will focus strictly on how to measure the tangible benefits of an ERRP on retention. First, we must establish a correlation between recognition and rewards and employee retention.

Researchers at the University of KwaZulu-Natal did a correlation analysis which showed that “there exists a strong positive correlation between recognition aspects and motivation aspects (Pearson correlation coefficient: r = 0.881)”[1]. Now, how do you measure it?

The 4 Steps to Building the Business Case

 
1. Calculate the cost of your turnover

Many elements go into replacing an employee that leaves.

Examples are: the number of days a position is unfilled and valuable work is not getting done, the overall cost of preparing a job requisition, job boards/agency costs, interviewing time, onboarding costs, costs of a background check, etc. Once you have a solid estimate based on your own data, you are ready for the next step.

2. Figure out the cost of your desired Employee Recognition and Rewards program

The cost of such a program can include time spent designing a new program, cost of benefits (gift cards, bonus, days off, merchandise, etc.), and software cost.

3. Derive estimated savings

You need to decide what is your target reduction in turnover rate attributable to the new ERRP and multiply it by your cost of turnover from step 1 and your number of voluntary turnovers.

4. Calculate your ROI

Now that you have the estimated savings deduct the costs of your ERRP from step 2 and divide by the estimated savings. If it’s positive and a compelling number, your CFO will be attentive to your pitch to prioritize such an initiative as part of the budgeting process.

Conclusion

Organizations are looking for creative ways to attract and retain their employees in a world where everyone is understaffed. With a potential recession looming, getting the Executive team to approve a spend is a big challenge. Those best prepared will have a higher probability of success. If you are the sponsor of an initiative and/or an advocate that ERRP’s have a high correlation to increasing employee engagement and positively impacting the culture, leading to the tangible benefits of higher retention, use the tools at your disposal to have an ironclad business case.

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[1] Mngomezulu, N., Challenor, M., Munapo, E., Mashau, P., & Chikandiwa, C. T. (2015). The impact of recognition on retention of good talent in the workforce. Journal of Governance and Regulation, 4(4-3), 372-379.

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Luc Hédou

CEO | Head of Sales

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