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Budgeting for an Employee Recognition Program

“How much should we be spending on recognition and awards programs for our employees?”

It’s one of the most common questions we hear in the recognition industry and an essential one. Most organizations budget between .5% – 2% of what they spend on their payroll for their recognition program, with the average spend around 1%. This range represents your total recognition budget, meaning that number (1% of annual payroll) would be your cumulative bottom line for service awards, peer recognition, safety, and any additional performance programs.

While that total is an excellent place to start, it’s important to remember that this will look vastly different for each company. If your recognition program is more extensive, your target may be closer to two percent or even higher. Meanwhile, if your recognition program is a bit trimmer, it may fall slightly below that average range.

Start Here

To determine your total recognition program budget, first, evaluate your annual payroll spend and multiply that by 0.01 (1%) for baseline value. Once you have your number, then determine what types of recognition you need to include and which types are the top priority. If you need some inspiration, here are the top five most common recognition programs across the United States, as reported by the WorldatWork and ITA Group poll:

  1. Service Milestones
  2. Performance
  3. Reinforcing Specific Behaviors (i.e., Safety or Wellness)
  4. Peer-to-Peer
  5. Retirement

Personalize Your Plan

Once you’ve finalized your list, begin the process of categorizing and delegating your budget. A client offered this tip:

“Early on, we aligned our organizational core values with an employee-focused strategy of effectively rewarding, recognizing, and intellectually engaging staff members.  The plan included a budget for seven specific areas:

  1. Day-to-Day Recognition
  2. Gifts and Awards
  3. Above-and-Beyond Recognition
  4. Goals and Career Aspirations
  5. Personal Recognition Through Birthdays
  6. Career Recognition through Anniversaries
  7. Celebration Events

General Guidelines

Use the guidelines below to help you in your budgeting process:

  • Service: Industry best practice allots roughly $20 per year of service, recognizing for milestones on a five-year basis. This means that for your employees celebrating a 5 Years of Service milestone, you should plan to spend ~$100 each. For your employees (likely much fewer in number), celebrating 25 Years of Service with your organization, you should plan to allot about $500/person. Recognition Trend: as early job-hopping becomes commonplace, recognizing for service earlier is crucial to retaining employees. Many organizations are recognizing with awards, points, or a gift choice beginning at the 1- and 3-year milestones as well.
  • Peer-to-Peer and Performance: for social recognition programs like Carousel, we tend to see a “redemption sweet spot” around the $15-$25 marks. This means that most employees will begin redeeming their points for a product when they reach $15. An average baseline for budgeting is $15/employee in your Peer-to-Peer. This number may look bigger than you anticipated at first, but factor in that not everyone is going to get everything you planned. Recognition is about rewarding your high performers. The lowest-performing employees may not receive the full budgeted amount, and that’s OK.
  • Manager Recognition: We recommend you plan for your managers to recognize their direct reports at least ten times/year if not more. The average value of one of these recognitions should be higher than the value of a Peer-to-Peer badge, or thank you.
  • Behavior-Specific Programs: If it is a fit for the culture of your organization, safety, wellness, customer service, etc may need a particular allotment of your budget. If your sector requires a high level of safety recognition, plan to spend at least $25/employee on safety programs.

Compare Your Numbers

So as financial planning for the next year begins, where do you stand? Best practice allots 1-2% of payroll on recognition, but what we see as the average is closer to 1%. Take a look at these three budget options, one at the .5% mark, one at the 1% mark, and one at the 2% mark — each budget based on a recognition program with 500 employees. The smallest budget is a little more trim – featuring a service awards program, a Peer-to-Peer and Managerial program, and a safety program. As the budget increases, there is more room to add additional programs, creating a more comprehensive group.

Download Sample Budget

Create Your Own Budget Spreadsheet

When you are ready, download our budget planning roadmap to help create your program strategy. And of course, feel free to reach out to MTM for help with implementing a new recognition program or even just talking to one of our recognition consultants. We work with every budget, from $10 to 10 million, and we genuinely believe there is a great recognition solution for every organization.

Create Your Own Budget

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