The Measurable ROI of Employee Recognition

We often hear that recognition helps companies save thousands of dollars in recruitment costs, productivity losses, and employee turnover. But is that really the case? And how can we be sure? This is where measuring return on investment (ROI) becomes essential.

However, measuring the ROI of recognition is not a simple task. Many factors come into play: company culture, manager involvement, the frequency and quality of recognition gestures, not to mention the long-term impact on engagement, retention, and overall performance. It’s an exercise that combines tangible data with qualitative analysis. The results will therefore vary from one company to another, depending on their profile and specific challenges.

Despite this, we’ve decided to take on this exercise and demonstrate how recognition generates concrete and measurable value for organizations, using key statistics from expert sources.

Obviously, the results we’ll present are illustrative, as they only take into account quantitative data. The goal? To highlight the strategic potential of recognition in companies by offering you clear benchmarks to inspire you to evaluate your initiatives.

Let’s get started.

Typical Company Profile and ROI Calculation Methodology

To demonstrate the potential ROI of recognition, we need to create the profile of a typical company. Without a point of reference, it becomes even more difficult to concretely illustrate the financial impact that well-structured recognition initiatives can have. This fictional profile will allow us to apply real data to a plausible context, to better visualize the possible returns.

Thus, we’ve based our analysis on the profile of a Canadian company with 1,000 employees, with a total payroll of $63,000,000.

Our model considers an investment in recognition equivalent to 1% of the payroll, that is $630,000 for the entire company.

Why only 1% of the payroll? Because that’s the minimum required to see positive results, according to SHRM.

Employee and Salary Distribution of Our Typical Company

To quantify the financial impact of recognition, we use the following formula:

ROI (%) = [(Benefits − Investment)/Investment] × 100

This formula measures the return for each dollar invested in recognition initiatives. Benefits are calculated based on costs avoided through implementing a recognition program.

To add nuance to the analysis, we’ll present three different result scenarios:

• Conservative: More cautious impact than reference data
• Reference: Based directly on studies by recognized experts
• Optimistic: Impact slightly higher than reference data

Finally, since employee recognition can have a significant impact on several key aspects of an organization, we’ve chosen to analyze three in particular: turnover rate, engagement level, and absenteeism rate.

1. Impact of Employee Recognition on Employee Turnover

Did you know that 79% of employees have cited lack of recognition as the main reason for departure?

This represents a considerable number of people and significant costs for companies, especially when we know that, depending on the position and level of experience, replacing an employee can cost between:

• 40% and 70% of the annual salary for support/production employees
• 75% to 125% of the annual salary for professionals/specialists
• 125% and 150% of the annual salary for middle managers
• 200% and 400% of the annual salary for senior executives

These costs—including recruitment, training, loss of productivity, team impact, loss of expertise as well as administrative fees—can vary depending on several factors such as the industry, level of position involved, company size, and time needed to effectively replace and train the employee, and much more.

Table showing the total cost of turnover, assuming an average annual rate of 15%:

According to a study by the Aberdeen Group, companies with a recognition program have a 31% lower turnover rate than those without a program.

Here are the impacts according to our three scenarios:

2. Impact of Employee Recognition on Engagement

Disengagement, quiet quitting, quiet vacationing… These trends have been making waves in the HR world for several years now.

And for good reason: according to McLean & Company, a disengaged employee costs approximately $3,400 for every $10,000 of annual salary. And according to Indeed, two-thirds of Canadians would be disengaged at work.

In our typical company of 1,000 employees, this would represent 66.7% of disengaged people. To simplify, we’ll retain an average rate of 65%, that is 650 disengaged employees.

We’ve distributed this rate according to position categories to better reflect reality. Indeed, the level and nature of disengagement can vary according to hierarchical levels. After all, a disengaged employee doesn’t necessarily stop working—they simply do it with less involvement, initiative, or enthusiasm.

Table representing the total cost of disengagement for our typical company:

Considering that 80% of employees say they’re fully engaged at work when they feel valued, the number of disengaged employees would decrease from 650 to 200 for our typical company if it had a recognition program in place.

Here are the impacts according to our three scenarios:

3. Impact of Employee Recognition on Absenteeism Rate

In Canada, permanent employees are absent from work an average of 12.4 days each year.

This represents 12,400 days of absence for our organization of 1,000 employees. However, this number of days must be distributed variably among individuals, as the reality of absenteeism is much more nuanced than a simple uniform average.

For our typical company, we’ve created a table that distributes absences across different position categories and determined the average daily cost by employee category, that is, the annual salary divided by 260 working days, increased by 30% to integrate social charges. This distribution reflects a typical distribution where each employee category contributes proportionally to the organization’s total days of absence:

Table representing the total cost of absenteeism for our typical company:

Note: It’s important to emphasize that, in reality, the 12,400 days of absence will not be distributed uniformly among employees. Some will have no absences, others will accumulate several leaves, whether for personal appointments, temporary health problems, prolonged illnesses, or other. For our analysis, what matters is therefore not the individual distribution, but rather the overall economic impact of these absences on the organization.

According to Gallup, recognition programs can help reduce absenteeism by 27%.

Here are the impacts according to our three scenarios:

Conclusion

The scenarios, based on data from studies conducted by recognized experts like Gallup and Aberdeen Group, demonstrate impressive ROIs ranging from 93% to 693%.

These figures, while high, are based on serious research conducted by respected organizations in human resources. However, to maximize the ROI of your recognition program, several factors must be considered:

1. Quality of implementation: A well-designed program adapted to your culture will have a greater impact.
2. Authenticity of recognition: Sincere and personalized gestures have a superior impact to generic programs.
3. Frequency and consistency: Recognition must be regular and not one-time.
4. Management involvement: Leadership must come from the top.
5. Alignment with values: Recognize behaviours that embody your organizational values.

To know the real impact within your organization, regularly measure key indicators—retention rate, engagement, absenteeism, satisfaction—and observe their evolution following your recognition initiatives.

Methodological Note

It’s important to emphasize that it’s extremely difficult to calculate precisely the direct ROI of recognition in companies, as many interconnected factors simultaneously influence organizational performance. Recognition programs never operate in isolation; they interact with company culture, leadership, market conditions, and other HR initiatives. This analysis proposes an approximation based on reference data from recognized studies in the field of human resources. The results presented illustrate the theoretical potential of a well-designed and executed recognition program, but actual results will vary considerably according to the specific context of each organization. Readers are encouraged to consider these figures as indicative orders of magnitude rather than precise predictions. The true benefit of this analysis lies in demonstrating that recognition is not simply a “nice to have,” but a strategic investment with measurable returns on several critical dimensions of organizational performance.