Can Your Recognition Initiative Be Self-Funded?

bob's Blog Dr. Bob Nelson

I’ve been intrigued by the idea of how recognition, reward and incentive programs, if designed correctly, can be self-funded.   If you start with the notion—which I do—that all recognition should drive desired performance that matters most to the success of the organization, it follows that all performance that matters typically leads to a positive financial impact or a decrease in an organizational cost of some type.

The clearest example of this is sales incentives.  You spend a certain amount of money to implement a sales incentive, host a sales contest or provide an increased sales commission.  At the end of the sales cycle, you evaluate if sales revenues increased due to the impact of the sales incentive(s).  If, yes, you do it again, or perhaps do something greater.

The same holds true for non-sales employees as well, although the connection is not always as direct.  For example, cost-savings ideas:  If you recognize, i.e., notice or thank someone for a cost-saving idea, the interaction will have netted a gain in revenues as implementation of the idea will reduce the organization’s costs.  In just one (extreme) example, I know of a shipping clerk who suggested to the book publisher he worked for that when the company re-orders one of the thickest (and heaviest) books from their printer, if they would have the size of the pages trimmed less than 1/8 of an inch, it would save some money in that the popular book would fall into a lower shipping rate.  Indeed, it did.  In fact, in the first year alone, the savings in shipping costs on this one book was over $500,000—a savings that was ongoing year after year.

Now consider incentivizing client referrals on the part of employees.  Or employee referrals for new hires.  Or process improvements. Or innovation. Or quality. Or employee retention.  Each of these activities will have a direct impact on increasing revenues or deceasing costs, to the point in which the total revenues gained or costs eliminated exceeds any related costs of the recognition/reward/incentive program itself.

Although the link between recognition and retention seems more distant in that retention itself is measured over a span of years, the impact on the cost savings in hiring, training and getting a new employee’s performance up to speed is proven and significant.  The National Society for Human Resources Management estimates the cost of replacing a professional employee at 1.5 times the employee’s annual salary. Thus spending 2-3 percent of the equivalent of a person’s salary to incentivize the performance you most want from that employee ends up saving the organization an equivalent of 47-48% of the person’s salary for each year they remain productively employed by the company.

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