Insider Tips: How to Budget for your Employee Recognition Program

By MTM Recognition 

Effective employee recognition programs are tied to an increase in employee retention and employee engagement.

In fact, Towers Watson’s Global Recognition study stated that praise can have the same impact on job satisfaction as being awarded a pay raise.

There’s no doubt recognition done right pays off for the employees and the company.

But how much should a company budget for their employee recognition program? The answer to this can vary as every company has different goals for their recognition programs.

A World at Work study found that while some organizations spend as much as 10% of payroll on employee recognition, the average budget for employee recognition is 2% of payroll, and the median amount is 1%.

When you are considering the budget for your recognition program, there are several things to keep in mind, one being, your overall goals. Next, do you have a set budget allocated for recognition within your company? Most importantly, how do your employees like to be recognized? Answering these questions will help to make sure you’re moving in the right direction in planning your recognition initiatives as well as the type of program(s) you’d like to implement.

4 Trending Types of Employee Recognition Programs 

  • Tenure or Service Awards Program –This is a traditional and a beneficial way to increase employee retention. Employees need to be recognized for the time they’ve invested in your company. Studies show that on average U.S. employees will stay at a company two years longer if the company has a milestone program.
  • Spot Awards – Spot Awards are designed to recognize special contributions as they occur, for a specific project or task. They are also a great choice for frequent & ongoing recognition. These programs recognize and reinforce the behaviors and values that are important to your company. They’re typically used for special occasions such as birthdays, anniversaries and other in-the-moment reinforcement recognition. Spot awards can be achieved through many methods including point redemption programs.
  • Social Recognition – This program provides a platform to create an overall culture of recognition. The platform allows for all of your recognition initiatives to be visible in one location. Typically, each employee earns points for their accomplishments, and they can redeem their points for gifts and merchandise. With the rise in technology, this program option also helps to keep remote workers connected and engaged. A SHRM study found that peer to peer recognition is 35 percent more likely to have a positive impact on financial results than manager-only recognition.
  • Performance Recognition – This form of recognition rewards employee performance. These programs can be used to help increase engagement in your sales team, or to increase participation in your wellness or safety initiatives. Neuroscience has shown over-and-over again that when good behavior is rewarded, that behavior is very likely to be repeated. Think about your sales, project or business goals: what type of recognition program can you design to replicate the successes of your team?

Budget Considerations for your Recognition Program

  1. Save by Using One Platform – It can take a lot of time to manage many recognition programs on different platforms. All of your measurements and data should be in one place, so you can get a holistic view of how your plan is working. This helps to streamline the process for the administrator and allows you to bundle all of your recognition efforts together for cost savings.
  2. Tailor Your Approach – Based on your goals, decide what program you want to prioritize. You can scale your recognition efforts to fit the target goals you’re trying to reach. The cost can vary based on the type of program you choose. For example, a peer to peer program is an excellent way to build teamwork. These programs typically have many transactions at a low cost per transaction.
  3. Consider All Costs – Beware of hidden fees. Some recognition providers don’t make you aware of setup charges and technology fees. Be sure to ask questions about all charges before you start the program. When budgeting for your recognition program, be sure to consider sales tax, shipping & handling costs.
  4. Budget for Taxes– Some award programs are exempt from payroll taxes, such as years of service programs. Others are not exempt. Please consult your tax adviser to plan a recognition budget that takes this into consideration.

IESP member companies can be helpful resources when developing your recognition program budget.