Investing in Your Employees: Budgeting for Rewards and Recognition

June 14, 2023

Rewards and recognition programs are a great way to motivate and engage employees. They can help boost morale, increase productivity, and improve overall job satisfaction. However, setting a budget for these programs can be challenging. Here are some tips to help you set a budget for a rewards and recognition program so that you can create a thriving culture that satisfies your employees and suits your bottom line.

Determine Your Goals

The first step in setting a budget for a rewards and recognition program is to determine your goals. Think about what you’d like to achieve, prioritizing what is most important to your organization. Some examples might be one or all of the following:

  • Increase employee engagement and morale: The goal of this program is to boost employee satisfaction and engagement, leading to better retention rates and higher productivity.
  • Improve customer satisfaction: A program that motivates employees to provide exceptional customer service, can lead to higher customer satisfaction rates and increased customer loyalty.
  • Increase sales: A program that rewards employees for meeting or exceeding sales targets gets a bit of healthy competition going and can help drive revenue growth and increase market share.
  • Encourage innovation and creativity: A program that recognizes employees for innovative ideas or creative problem-solving can help foster a culture of innovation and improve overall business performance.
  • Recognize and retain top talent: A program that rewards top performers can help retain key employees, inspire up-and-comers, and reduce turnover rates.
  • Foster teamwork and collaboration: A program that encourages and recognizes teamwork and collaboration can help improve communication and cooperation among employees, leading to better business outcomes.

Research shows that only 60% of organizations tie recognition to business goals. If you establish the right kind of recognition aligned to your goals, and develop a budget to achieve those goals, you’ll be on your way to impacting employee behavior and business performance.

Consider Your Audience

The next step is to consider your audience. Who will be participating in the rewards and recognition program? Will it be open to all employees, or just a select group? Will it be focused on salespeople, customer service representatives, or other employees? The answers to these questions will help you determine the type and number of reward programs that will be most effective.

Recognition Program Design

Rewards programs that use a company-wide technology platform to socially recognize employees for their achievements — like Inspirus Connects — reach a wider audience and create the type of close-knit workforce community that fosters a thriving culture. Employee recognition program ideas can include:

  • Service Awards: These programs recognize employees for their length of service with the company, including retirement.
  • Peer-to-Peer Recognition: This program allows employees to recognize their team members and colleagues for their contributions to the company, with monthly allowances of points to award as they see fit.
  • Performance-Based Rewards: These rewards are given to employees who exceed performance expectations or achieve specific goals.
  • Values-Based Rewards: These rewards are given to employees who “live the company values” and exhibit behaviors that align with company values, mission, and vision.
  • Wellness Programs: These programs reward employees for maintaining healthy habits, such as regular exercise or quitting smoking.
  • Special Programs: These programs reward employees for special or annual events, like Employee Appreciation Day.

Determine Your Budget

Once you have set your goals and have a clear idea of your audience and program design, you can begin to determine your budget. There are several factors to consider when setting a budget, including the size of your organization, the number of employees who will be participating in the program(s), the different types of recognition programs, and the types of rewards you plan to offer.

One common rule of thumb is to allocate 1-2% of your total payroll for your rewards and recognition program. For example, if your organization has 100 employees with a total payroll of $5 million, your budget would be between $50,000 and $100,000.

If allocating 1-2% of your total payroll seems like an impossible task, here are some recommendations and best practices for reviewing and setting program budgets.

Service Anniversary Awards

Evaluate your current service awards budget by looking at your employee satisfaction scores and gathering employee feedback from pulse surveys like Employee Voice. Then, consider:

  • Are your employees pleased with the value of the awards they are receiving for their years of service?  
  • When was the last time you reevaluated your current service award budget? Is it time for an update?
  • What milestones are you currently recognizing?  
  • Do you have employees with seniority that will require you to add new years of service at 35 or 40 years? 

Milestone Best Practice: We recommend recognizing early and often, starting from year one and celebrating every year thereafter, at least up until 5 years of service. The Bureau of Labor Statistics (BLS) shows that the average tenure of an employee in 2022 was 4.1 years. So, if you don’t engage employees again until year 5, you’ve likely lost the opportunity to build a long-term relationship.

Program Evaluation Best Practice: We recommend that an organization reevaluate its rewards and recognition program at least once a year to ensure that it is meeting the changing needs of employees and the organization. A formal evaluation will ensure they are effective, efficient, and equitable.

Service Anniversary Budget Best Practice: When budgeting for service anniversary awards, our recommendation is $25-$50 per employee per year of service, increasing each year by $25. So, for example, budget $25 per person for each employee celebrating one year of service; budget $125 per person for each employee celebrating 5 years of service; and budget $250 per person for each employee celebrating 10 years of service, and so on.

Other Recognition Programs

Studies have shown that recognition and appreciation from managers and colleagues are among the top drivers of employee engagement and retention. Knowing this, and with so many opportunities available to show your employees they are valued using recognition, how much should you budget for these types of programs?  

Recognition Budget Best Practice: A good rule of thumb is to allocate at least $25 per employee per year. But if several programs are used, that budget could prove quite thin very quickly. Allocating $75 per employee per year will give you the flexibility to reward in several areas, in addition to service anniversary. Companies with a thriving culture and low turnover rate typically earmark $150 or more per employee per year for their recognition programs.

However, the amount that companies allocate for recognition programs can and should be based on factors such as the size of the company, the industry, the types, and the number of recognition programs offered. Your program provider can help guide you through this process.

Choose Your Rewards

The types of rewards you choose will depend on your goals and audience. Some popular options include eGift cards, merchandise, experiences, company swag, charitable giving, tickets & events, and a new trend called “mobile top-up” that provides mobile credits and rate plans from over 260 carriers globally.

You may also want to consider non-monetary rewards such as extra time off, flexible work arrangements, tuition reimbursement, or special parking spots.

When choosing your rewards, it’s important to keep in mind the tax implications. Cash bonuses and gift cards are generally taxable, while non-monetary rewards may not be.

Track Your Results

Finally, it’s important to track the results of your rewards and recognition program. This will help you determine whether your budget was effective and whether you need to make any adjustments in the future. You can track results by monitoring employee sentiment using surveys or feedback, tracking retention rates, watching sales figures or paying attention to customer satisfaction ratings.

Setting a budget for a rewards and recognition program can be challenging, but it’s an important step in creating an effective employee rewards program. By using these steps as a guide, your program will create a thriving culture that helps drive your business forward.