Learn how return on investment (ROI) is the best metric to assess the effectiveness of an organization’s total rewards strategy compared to retention rate, turnover rate, and employee surveys.
Table of Contents
Question
Which metric best emphasizes the effectiveness of an organization’s total rewards strategy?
Answer
Return on investment. In practice there are many possible measures metrics and analytics HR can use to analyze the effectiveness of the organization’s total rewards. Return on investment is one of them. The retention rate measures the retention of particular employees over a specific period of time and complements the turnover rate. The turnover rate shows the percentage of separations in a certain period of time. Survey results do not show the effectiveness of the organization’s total rewards strategy.
Explanation
The metric that best emphasizes the effectiveness of an organization’s total rewards strategy is return on investment (ROI). While there are many potential measures, metrics and analytics that HR can use to evaluate total rewards effectiveness, ROI provides the most comprehensive assessment.
ROI looks at the financial returns generated relative to the costs of the total rewards programs. It directly ties the investment made in compensation, benefits, and other rewards to bottom-line business outcomes and value creation. A high ROI indicates that the total rewards strategy is effective at motivating employees and driving organizational performance in a cost-effective way.
In contrast, while useful, other metrics are more limited in scope:
- Retention rate measures the percentage of employees retained over a given time period. It provides insight into the ability of rewards to keep employees, but doesn’t factor in the costs or tie to business results.
- Turnover rate is the inverse, showing the portion of employees leaving in a time period. Again, it relates to retention ability without wider considerations.
- Employee survey results reveal perceptions and satisfaction with rewards, but are an indirect measure that doesn’t prove bottom-line impact.
So in summary, ROI, by connecting total rewards investment to tangible returns, is the most illuminating metric regarding the holistic effectiveness of an organization’s total rewards strategy. The other measures can complement ROI, but are narrower in focus.
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