Two primary perspectives exist when it comes to employee reward programs:
- Reward programs are seen as a cost of doing business, in which case the goal is to minimize the costs.
- Reward programs are seen as an investment, in which case the goal is to optimize the return on the investment.
Organizations, including their managers and HR professionals, are likely to behave differently depending on their perspective. This difference in view will in turn clearly have an impact on employee perceptions and thus, engagement. This is an important consideration because employee engagement and enablement both matter for optimal organizational performance.
Less than one-third of employers measure the effectiveness of their employee reward programs in terms of the impact they have on employee engagement and retention. How can you tell if the employee reward program is fair or effective if it’s not being measured?
How Can You Evaluate Employee Reward Program Effectiveness?
To adopt a systematic process for evaluating reward program effectiveness, use multiple perspectives and rigorous and consistent processes. Here are some examples of ways to do this:
- Use employee opinion surveys and/or focus groups to understand how employees and managers feel about fairness in the employee reward program.
- Monitor the influence of fairness and equity on employee behavior.
- Assess the operational results that the employee reward program is expected to impact, such as turnover and engagement.
- Calculate the ROI, program costs, and value added by employee reward programs.
When doing these calculations, “there’s a balance between the quantitative and the qualitative measures, and there’s that balance of the perception versus the end results as well.” Amanda Wethington advised in a recent BLR webinar. “When you’re calculating the values of these programs, it’s really going to be a mix of [both], but first you [need] a tool to measure it so you can take a look and really understand how effective your program may be or where you may have some ability to make some improvements.”
These calculations are important because they set a baseline. The ultimate question for organizations is how to increase levels of employee effectiveness and thus profitability. This is directly impacted by employee engagement, which is in turn directly impacted by the employee rewards program. By measuring and improving your employee rewards program, you will impact profitability.
For more information on the importance of measuring effectiveness of employee reward programs, order the webinar recording of “Employee Rewards: How to Fairly and Effectively Drive Engagement and Loyalty.” To register for a future webinar, visit http://store.blr.com/events/webinars.
Amanda Wethington is a senior associate in the Chicago office of Hay Group. Her focus is on work measurement, reward programs, and sales incentives.