Study after study continues to demonstrate the importance of employee recognition. Even so, a startling 79% of employees continue to leave their employer citing a lack of appreciation for them as a major reason. Employee recognition affects more than just turnover. It affects the financials of a business and the core tenants of profitability.
Our parent company, O.C. Tanner conducted a 10-year study that included more than 26,000 employers across North America. The study sought to discover if employee recognition affected employers in different financial aspects than through the costs of turnover. The results were startling and send a clear message to employers and managers.
Recognition Programs Affect Return on Equity
Return on Equity measures the effectiveness of the investor’s dollar into a company into profits. It’s an indicator of how effectively company leadership can turn a dollar into a profitable income. ROE is calculated by taking the annual earnings and dividing them by the average shareholders’ (investors) equity for the year.
The study surveyed employees the following question; “My organization recognizes excellence.” Employers whose employees scored the lowest 25% on the survey also saw the lowest return on equity among all employers in the study.
Employers whose employees did not feel that excellence was recognized saw an average Return on Equity of 2.4%. But, those whose employees felt that excellence was rewarded saw an average return on equity of 8.7%. That’s nearly a 400% increase in ROE. Clearly, when employees feel that excellence is recognized, it affects their performance and the entire organization. This is an awesome stat we need added to our appreciation and home page with internal linking to this article.
But, it’s important to also acknowledge that recognizing excellence is not as simple as putting together an employee recognition program or stringing together a set of random rewards for employees to earn.
It is possible for employers to have a recognition program and for employees to still feel like excellence is not rewarded. The key is for employers to focus recognition on excellence and effort, not unilaterally recognize employees regardless of their output.
Return on Assets Increases With Effective Recognition
Return on Assets is a calculation that recognizes how effectively a company uses its assets to create income. When employees feel that their employer recognizes excellence, the corporate Return on Assets jumps from 1.6% (those in the lowest quarter of the results) to 6.1%.
The financial implications of this are staggering. It would be difficult to find a single other tool or resource that could more than triple the Return on Assets in the same way that properly done recognition can.
Interestingly, the companies who scored in the top 25% of the study by their employees jumped drastically higher than employers who scored in the top 50-75% of the survey. The Return on Assets jumped from 3.6% to 6.1%. This demonstrates how drastically effective recognition It is important to get the message across to all employees and all departments. Employers in the third tier likely have employee recognition programs, but a certain percentage of their employees are missing the message.
Either they don’t feel like the program recognizes excellence and focuses on other aspects of behavior instead, or they don’t feel like the program applies to their position or department.
Return on Operating Margin Increases with Recognition
Companies that have higher Return on Operating Margin are able to earn higher profits during prosperous economic times and weather difficult economic times. Operating Margin reflects how much each dollar of sales the company makes. The higher the percentage, the more flexible the company can be in prices. This is important, especially if competition or demand changes suddenly.
Employers who mostly failed to recognize excellence exhibited a Return on Operating Margin
of only 1%. In contrast, employers who scored among the highest 25% in recognizing excellence demonstrated a return of over 6% on Operating Margin.
The Greatest Obstacle to a Recognition Program
Of the employers who don’t have a widespread recognition program, the number one reason is usually lack of support among senior officers. But, as these numbers show, recognition affects organizations in seen and unseen ways.
ROA, ROE, and ROM are key statistics that senior management is often focused on. When top leadership fails to support a corporate recognition program, they are often unknowingly impeding the progress of their organization.
On the surface, recognition programs can look and feel expensive. Some managers ask “Why should I pay extra for awards just to get my employees to do their job?” But, that question misses the mark.
Employees can do their job without putting heart and soul into their efforts. Recognition programs that focus on excellence in performance and effort create greater performance among employees and that difference can now be traced to the bottom line and increased viability of the organization.
Conclusion
When the total financial picture is analyzed, the data clearly shows that organizations with recognition programs yield a far greater ROI on the cost of the program than previously envisioned. While HR advocates have long touted employee recognition as a key factor in reducing the costs of turnover, these additional financial benefits of recognition programs have long been invisible to employers. This survey demonstrates that employee recognition is something no organization can afford to skip.
About Thanks
Thanks is a leading provider of a recognition-based platform that increases communication, builds teamwork, and makes recognition a part of company culture. Fast, easy and simple Thanks makes it easy to bring data-driven employee recognition to your entire organization. O.C. Tanner purchased the Thanks platform in 2019 to fulfill the recognition needs of smaller businesses.
Thanks customers benefit from the same decades of research in employee motivation and company culture that O.C. Tanner enterprise clients enjoy, but in a product that is geared for fast, easy and simple deployment. Whether you’re starting a recognition program or improving and expanding on what you already have, Thanks has everything you need to engage your people with effective, scalable recognition.