Calculating the Value of Employee Recognition

If you work in HR, its likely that you’ve heard the adage ‘a business’ most valuable asset is its people’. You’ll understand your role is to manage these assets. Organisations overall are becoming increasingly aware of the value of their people– which is why HR has been thrust from backroom process to business-critical driver over the past few years as companies have had to weather crisis after crisis, from the COVID-19 pandemic to The Great Resignation, to a growing candidate shortage.

These mounting challenges that companies are facing around employee retention and recruitment have emphasised the truth of this adage, and this has in turn put employee experience firmly under the spotlight as businesses try to save both money and time by ensuring their employees are happy and satisfied in their roles.

What’s the deal with EX?

Employee experience (EX) is all the interactions employees have with a company. It begins before employees even join the company. From the moment they apply for a role to the moment they leave, employee experience defines the entire lifecycle of an employee. 

Employee experience covers the how employees feel about:

• The company culture
• The work they do
• Benefits
• Development and training
• The technology they use
• The physical environment of the workplace
• Relationships with co-workers
• Trust in leadership and their employer

While many organisations are looking to invest in initiatives to improve employee experience, our research into EX last year found that while 60% of HR leaders say they are looking to improve return on investment from employee experience initiatives, 44% admit that they do not measure employee experience and its impact on the bottom line.

Yet EX has a huge impact on the bottom line – one study published by Glassdoor tracked the Best Places to Work and compared their performance with the S&P 500. Their analysis showed a distinct correlation between employee satisfaction and financial success, with all the Best Place to Work outperforming the S&P by anywhere from 53 to 122%.

“Companies that invest in employee experience are 4x more profitable than those that do not,” writes author Jacob Morgan, in his book ‘The Employee Experience Advantage’. For Morgan, employee experience motivates people far more than even money or other factors.

So, what is a simple solution for organisations looking to focus more on employee experience?

Improving Employee Engagement

Directly connected to employee experience is employee engagement. While employee experience considers all the touchpoints that a worker goes through in the long-term employee lifecycle, employee engagement is a shorter to medium-term measurement of how committed an employee is to their organisation and its goals. Employee engagement is a strong indicator of the employee experience within a business.

Employee engagement is often a critical factor to not just employee experience but to business success more broadly. A study published by Gallup highlights the many benefits of employee engagement, from 23% increase in profitability to 14% increase in productivity.

Employee engagement then, like the canary in a coal mine, can provide the early warning signs that your EX-initiatives are not working. It directly impacts EX. Simply put, if you reap high levels of employee engagement, you will sow high levels of employee experience. And while EX can be difficult to measure, employee engagement, by contrast, can be straightforward to track and improve.

This is why it is essential to draw upon the data from HR reporting and analytics software to help make more informed, data-driven decisions. These reports can show exactly what EX-initiatives are working well, and what aren’t

So, at the risk of sounding a bit like the old lady who swallowed a fly, to improve EX, you must first improve employee engagement. How do you improve employee engagement? You need to have tools and structures in place to provide employee recognition.

Employee recognition programs are increasingly being used by organisations that want to improve employee engagement and experience. Modern employee engagement solutions are taking shape as employee recognition platforms. These platforms take historic engagement practices and align them to the needs of the modern workforce, replacing outmoded practices such as top performer programs, creating a holistic approach that benefits all employees, all the time.

These platforms provide greater reach and impact, ensuring equity so that recognition is no longer an ad-hoc program, prone to individual biases, but instead a central part of an organisation’s culture and values.

Yet to truly understand the value of employee engagement, we must first understand the significant cost of employee disengagement.

The Cost of Employee Disengagement

The cost of disengagement is clear in terms of the two most common by-products of disengagement: absenteeism and employee turnover. Disengaged employees have a poor experience and are more likely to miss work or leave your company altogether.

Let’s dig deeper.

Absenteeism Cost

Absenteeism is defined as the failure to report for work or remain in work. It covers unexpected absences rather than paid time off or holiday days. To calculate the absenteeism rate, you must take an employee’s absent days and divide them by the number of workdays available in a given period. The average absenteeism rate in the UK is around 2.2%, the highest rate since 2010. An estimated 149.3 million working days were lost in the UK last year because of absenteeism. That is the equivalent of 4.6 days per worker.

The cost of absenteeism on businesses includes:

• An employee’s salary or wages
• The cost of replacement workers
• Admin costs relating to managing an employee absence

Turnover Cost

Turnover describes people leaving your company. This can be voluntary or involuntary, but both can be costly for an organisation.

Hiring new employees is generally more expensive than maintaining existing employees. There is also a loss in productivity while the new employee learns about their job. Turnover can also severely impact both culture and morale.

Employees leaving can entice others to do the same, as vacant positions can lead to remaining employees needing to manage the workload of those who have left, at least while a replacement is found. This can cause additional stress and tension in the workplace.

The great resignation has sparked a trend over the last 18 months that has seen employee turnover skyrocket. Only 15% of senior decision makers in the UK say their businesses have been unaffected by increased turnover, while 79% of businesses were struggling to recruit new staff because of the higher rates of turnover

According to research published by Oxford Economics, the average cost of turnover per employee is around £30,614, and this number can increase depending on the salary of the individual.

Disengagement Cost

Research by Gallup suggests that 74% of employees looking for new work right now are disengaged in their current roles. That same research has highlighted that disengaged employees are 37% more likely to be absent from work, 18% less productive, and account for a 15% decrease in profitability.

American researchers Curt Coffman and Gabriel Gonzalez Molina, in their book ‘Follow This Path’ have calculated that disengaged workers cost their employers 34% of their annual salary – over a third of the money they make.

The Solution: Employee Recognition

As noted above, increasingly, employee recognition platforms are being used to improve employee engagement. There is a growing body of research that highlights the link between employee engagement and recognition. 37% of polled workers said that recognition was key to motivation, engagement and productivity, over 5 times the number of workers who responded that they wanted to be paid more.

XCD now offer an employee recognition tool, XCD Appreciation, created to enhance employee experience by providing an easy-to-use platform for sharing and receiving employee recognition.

Using the three costs highlighted previously: absenteeism, turnover, and disengagement, you can develop a strong understanding of the ROI of investing in an employee recognition tool to improve engagement and experience.

We’ve developed an ROI calculator to make it even easier for businesses to understand the value and cost-savings that improving recognition can provide.

To understand the ROI of improving engagement through recognition, fill out the form below to get our free ROI calculator.