IRF value study examines ROI for incentives programs

Have you ever been concerned that competitors have been diligently measuring the ROI on their employee reward and recognition programs, while your company hasn’t? 

If so, your fears are well-founded, suggests Award Program Value & Evidence, a new study by the Incentive Research Foundation. According to a recent survey of 350 large U.S.-based companies cited in the report, more than three-quarters analyze performance data from their incentive programs and use that data in decision-making. 

We’ve already looked at one large component of this IRF study, discussing ways in which non-cash tangible rewards often outperform their cash counterparts. Here, we’ll examine how businesses are measuring the success of their incentive programs, and not only in terms of black-and-white financial benefits. 

Which metrics are they measuring? Sales, of course, along with decreased turnover, increased productivity, revenue, market share and gains in customer loyalty and satisfaction. Some firms are even measuring customer acquisition. One study determined that 73 percent of firms measure productivity, while 49 percent track retention tied to their programs. In channel sales programs, almost 70 percent measure revenue from increased product sales, while 75 percent track new customers. 

Who’s showing up, and when, is also something organizations are keeping an eye on. Not terribly surprisingly, more people miss work on Mondays and Fridays than mid-week. Weighing a particular impact is an important aspect of measuring ROI, for firms intending to do a “full and credible estimation” of program benefits. 

There seems to be momentum for measuring some intangible benefits, although it’s not yet clear how effectively this can be done. One study surveyed 137 reward managers, who said they’d be more likely to gauge the success of their programs in terms of employee retention, customer satisfaction and overall performance when offering exclusively non-cash rewards vs. exclusively cash rewards.  

Additionally, managers using cash and non-cash tangible and intangible rewards were more likely to link their customer satisfaction data to their hard, financial revenue metrics than those using only cash reward programs. When companies use both cash and non-cash reward programs, they tend to tie cash to hard metrics like performance and revenue, and non-cash to intangible benefits, like presenteeism (working while sick) and employee satisfaction. 

Yes, there will be math. A small number of firms use formal formulas to calculate ROI. One example would be total benefits minus total costs divided by total costs, multiplied by 100 to get a percentage ROI. Got all that? 

The report also advocates combining ROI analysis with “change point analysis,” in order to account for events that wouldn’t necessarily show up in mathematical reckoning. In an example involving sales contests, researchers noted a steady decline in sales in the weeks directly before and after the contest duration, although still remaining above baseline expectations after the contest ended. 

The researchers concluded that salespeople were attempting to time their sales to close within the contest dates, with the “leftovers” closing in the weeks afterward, thus accounting for remaining above the baseline. The ROI using the change point analysis technique was 10 percent higher than the typical calculation, although the study states that the greater insight was the need for better understanding of behavioral effects to improve design for the next cycle. 

While tangible financial benefits of incentive programs can be measured without undue difficulty, that’s not quite the case for the intangible non-financial benefits. Those will be the focus of an upcoming companion IRF paper, “Establishing the Intangible Value of Awards Programs.” 

The full report can be downloaded here.