The ROI of Employee Rewards Platforms
Whenever you take a look at any type of decision for your company there’s always of course many factors at play; The immediate cost of the software or decision you will be making, the opportunity cost of your time, as well as the positive or negative outcomes that will be manifested as a result of the decision. This is no different when it comes to Employee/ Channel Rewards Platforms.
Below, we have carefully laid out some advantages and disadvantages we see of Implementing a new Employee Rewards System (using a provider such as ourselves) and have gathered very useful 3rd party statistics. This is not intended to be an all exclusive list or a how to on structuring a rewards program for your specific team, but just a high level cost/ benefits study of starting a new Rewards for your team so you can hopefully be more informed about the topic.
Cost (Employee turnover + production)
Let’s start off with the happy part first; how this will benefit you and your team! (Or at least what you can maybe make better) It’s been very well studied that offering incentive programs and/or programs aimed at engagement in return yield positive returns on engagement. Engagement and positive reinforcement at a workplace helps with a variety of factors including 1.) Reduced Employee Turnover 2.) Higher production from Workers 3.) And healthier Workers. For sake of complexity, we will not take a look at some of the other advantages like the increased benefits of attracting new talent.
One of our favorite resources, Gallup, states, “Highly engaged employees with high well being miss 70% fewer work days because of poor health annually, are 45% more likely to report high levels of adaptability in the presence of change, and are 59% less likely to look for a job with a different organization in the next 12 months.” Engagement comes from high touches, rewards, and a general sense of belonging within the work environment.
Sadly enough (statistically speaking) a significant number of people reading this article probably have a majority of their coworkers actively shopping for roles at other employers. According to Zenefits, “In fact, more than 50 percent of the world’s top companies report that they have difficulty retaining their most talented employees.” Employee turnover accounts for many factors in costs such as training a new member to replace them (If they can be found) and the loss of productivity in getting a new member up to speed. Another excerpt from Gallup states, “The cost of replacing an individual employee can range from one-half to two times the employee's annual salary -- and that's a conservative estimate.” According to Proofhub, “Companies with employee recognition programs have a 31% lower voluntary turnover.”
One of the disadvantages of being human beings in the workplace is that we are not always super productive; We are not autonomous robots that complete Task A - Task B in rapid succession. The range of productivity between employees might range from someone routinely working 12-14 + hour days -> to someone maybe working 1-2 hours a day accompanied with plenty of Facebook scrolling. In terms of getting people to be active in their roles, engagement is the name of the game. According to Smarp, “Engaged employees outperform their peers that are not engaged. Overall, companies with high employee engagement are 21% more profitable.” This has been heavily stressed by many different research organizations throughout the years, and further emphasized through Covid social distancing and the reduction of constant face-to-face interaction.
Health; According to HealthyDirections.com, “heart attacks and sudden deaths occur on Monday more than on any other day of the week”. This has changed slightly in part to many workers rotating towards a ‘gig economy’ or shifts commonly being taken over the weekend or outside ‘traditional work hours’. While this has more to do with other factors than just not having a rewards program, most of us would probably agree that work can be very stressful. Many factors that lead to dissatisfaction at work can be helped by having a rewards program and offering engagement; The feeling of growth and future potential, a feeling of accomplishment and completion of satisfactory work that you are performing, and a feeling of belonging and positive reinforcement.
Now it’s probably good to get into the nitty gritty to help you calculate your ROI.
1. The most obvious factor right of the bat is the actual cost of the platform and rewards that you are sending. I’ll break these into Upfront and Ongoing Costs.
For Upfront costs you might have to pay for the system itself (whether up front, or in an ongoing cost in the form of a yearly SAAS agreement), the cost of integrations and set up (If you want to connect this to an external system such as payroll), and the opportunity cost of time for someone to actually set up the system or perform admin work. Upfront costs greatly depend on the type of project you are looking to do, system integrations, and the company you’re working with.
For Ongoing costs you commonly might have some type of licensing/ SAAS fee, the cost of the actual rewards that you are distributing, the indirect costs such as the time it takes your workers to perform the new functions caused by supporting a new platform and payroll taxes for your workers/ partners actually receiving the rewards. The additional ‘wages’ would also probably be subject to typical payroll tax; the normal SS and Medicare taxes (This is up to the discretion of your team and its tax strategy).
2. The next major factor is the work hours cost of your workers. Some of the major factors might be if you have some managing the Rewards program such as a Total Rewards Manager, the admin users distributing rewards or kudos, or the payroll team if you are tracking the rewards system with payroll. It might take an hour or so in total time/ per payroll cycle for the managers or HR Payroll professionals to complete the additional task.
ROI Case Example
Possibly the reason you are still reading this article; The ROI. This is according to statistics provided and does not take all factors into account such as attracting new workers due to a stronger offer, possibly adding a Rewards Manager, or the efficiency/ lack of efficiency depending on the type of rewards program for your company. This is by all accounts not a perfect estimation, but it might help you visualize some of the costs/ benefits together.
List of Assumptions For Example:
200 People company
$20 million company revenue, and an anticipated 20% increase in profitability due to an efficient rewards program (Smarp).
Average worker salary of 50K annually.
Average of $25 worth of ‘Rewards’ / per Employee/ per Month.
There is a cost to set up the system, estimated at $5K. (We do not charge any type of SAAS/ RAAS fee for StoreCash products so I will not include it).
A 31% decrease in involuntary employee turnover (Proofhub), based on a 10% voluntary turnover rate.
The low end of Gallup's estimate of a 50% cost of a workers salary in employee turnover in lost production and new training costs for training a new asset.
# Month 1
Cost to set up / integration to Payroll system.= $5,000
# Month 1-12
HR hours/ month ≈ 4 extra hours of payroll x Average Accountant Hourly Wage ($25) = $100/ month
Admin Hours to distribute benefits ≈ 4 hours/ month x $40/ hour = $160/ month
Rewards $/ per month = $25/ Employee x 200 Employees ≈ $5,000/ month
Payroll Tax (15% of rewards handed out ) = $750/ month
Total Costs/ month = $6,100
Total Costs (Y1) (Includes Setup) = $77,120
$20 million company revenue, and an anticipated 20% increase in profitability due to rewards program = $4,000,000 in increased revenue due to increased engagement.
Reduction in Employee Turnover:
(30% reduction in a 10% voluntary employee turnover) + (50% employee turnover costs on a $50K salary)
200 Employees x 3% turnover reduction = 6 Employees not voluntarily turning over x $25,000 saved production/ hiring benefits per worker = $150K/ Year.
Benefits (Y1) = $4,150,000
Net ROI (Y1) = + $4,072,880
% ROI (Y1) = 5,381%
There are still a significant number of companies that have not utilized Employee Rewards Programs for many reasons (Roughly 40% of companies) including costs and time of set up. Probably the best way to look at it is that you’re going to be paying for the cost eventually; whether it is immediately in direct costs of a Rewards program, or in decreased engagement and employee churn. As Benjamin Franklin once said, “By failing to prepare, you are preparing to fail”, so it’s probably best to plan for your company’s future.