Measuring up

With a growing demand from business leaders for departments and divisions to demonstrate return on investment, how important is it to ensure that incentive and reward programmes are measured effectively?


How do you ensure that you’re working towards gaining the right results for your business? The need to measure the effectiveness of the solutions that businesses are putting in place to achieve their goals has become more pressing over recent years, as budgets tighten and resources come under scrutiny.

Many businesses have reached the conclusion that their goals can only be attained if they have the buy-in and support of their employees. Incentivising employees to ‘do their bit’ is nothing new, but incentives are a cost and increasing numbers of businesses are asking for that cost to be justified. John Dove of House of Fraser says: “We’ve all experienced several years of things being tight for our businesses and the wider economy, and measuring ROI has become increasingly important as a result. This could well be the way things stay, certainly for the short term. “It pays to think about getting a good measurement system in place, before someone asks the question about whether employee incentives are worth the cost. Yes, they are but you need evidence in place to convince people.”

Of course, measuring the effectiveness of incentives isn’t a new phenomenon, or one that’s purely linked to difficult times – it’s good practice to understand whether a programme has had the desired impact. But what exactly should you be measuring?

Colin Hodgson of Edenred explains: “Without measurement, you have no way of determining success. The best question to ask yourself at the outset is, ‘what will success look like’. Focusing on that will allow you to establish the objective or challenge that needs to be met. It could be anything from getting more sales appointments to establishing a new product in the market, to engaging clients in a change of business process. You should attach a hard business metric to this, preferably a measure of pounds and pence of revenue delivered. That allows you to understand what the acceptable level of achievement is. It’s only then that you should look to develop an incentive programme, which is aligned to the specific criteria and engages the target audience. You also need to understand who needs to be engaged in delivering the performance, activity and change.”
Dove continues: “It’s about setting a clear statement of intent at the start of an incentive programme. Some objectives are fairly straightforward to measure, particularly financial objectives. However, some will be less tangible, but if you can think from the outset about how to attach a value to those objectives, you’ll find it much easier to measure your progress at a later date.”

Jenny Cuthbert, of Restaurant Choice, says: “It’s so important to measure, just gaining feedback from a good cross-section of the employees involved will give you a good idea of how well the programme worked. There’s nothing worse than knowing something worked well and wishing to run a similar initiative again, but having nothing to back up your request for funding.”

What are the key outcomes to measure?
Hodgson continues: “The ultimate goal in measurement is establishing a return on investment. If an incentive programme costs £10,000, but generates £100,000, then the return is 10:1. To measure ROI, objectives should be quantifiable. Here you need to ‘monetise the metrics’. If the objective is to reduce employee attrition, establish the current level of attrition, i.e. 20%. Calculate the cost of recruitment, training new starters etc. If the objective is to reduce attrition to 15%, which equates to 10 more people being retained and cost is £3,000 per person, then this is a £30,000 potential saving.”
Presentism is another key factor for organisations. Ensuring engaged employees are ‘present’ – how many people in an organisation have quit but not quite left yet. Research was presented at Recognition Professionals Institute in New Orleans earlier this year, which challenged the fact that, in some organisations it is the disengaged employees who look like the best employees as they are the ones who nod and say that everything is fine, against those that are truly engaged and challenge to deliver customer delight or best business results.
Brian Dunne, managing director of SVM Europe says: “With incentives, the Incentive Research Foundation’s research showed that there is a defined need for a ‘separatability’. This, in essence, is keeping separate a reward or incentive against normal remuneration or price. “Media that ensure the separatability such as non-cash rewards, have much more impact against cash. The industry research and benchmark looked at average cash disbursements of $250 verses merchandise at $100 and gift cards at $50, from this you can see the impact when a separate reward is given as against a bonus through payroll. Interestingly, also looking at rewards as a % of salary, cards and merchandise are at 2% of salary, which is significantly below cash at 3%.”

So how does an organisation ensure it deliveries the best return on investment?
Dunne continues: “Firstly, ensure that the incentive programme is driving towards strategic rewards of the company and aligns well with the culture of values of the business.
“Secondly, ensure that the rewards are desirable and separate. For someone to go home from work with, let’s say, a Great British Pub card, go out and have an enjoyable evening with family and friends, as a result of doing a great job at work is a truly beneficial and behaviour changing experience and incentive.

“Finally, ensure that you measure all the measures. Sears Department Stores proved an equation as follows: ES – ER – CS – CR – SALES – PROFITS. So starting with employee satisfaction through to employee retention, which then drives customer satisfaction, customer retention, which then in turn drives sales and profit. A leading light measure is that employee satisfaction.”

In summary, measurement of incentives is vitally important but so too is your understanding of the indicators and dynamics of that incentive programme.