Setting a feasible rewards budget will play a big part in the success of your Recognition Program.
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%. This provides some great context but there are many ways that you can budget for your program.
There are four common ways to budget for your Recognition Program. Below is a breakdown of each:
Fixed Budget - A dollar amount is budgeted for the program for a specified period of time, usually 12 months unless it’s based on a contest and therefore and temporary in nature. The purpose of this is to control costs and stay within the confines of that specified dollar amount. This works well for work anniversaries, birthdays, and other areas that are recurring in your program. Work anniversaries are the most popular so let us give you an inside peek into the opportunities there.
Variable Budget - Variable budgets are based on outcomes and contain a performance-based framework. These budgets are usually determined by financially defining the outcomes and what they are “worth” to the company. To determine the business rules, you must first create a performance-based framework, where employees are both objectively and subjectively measured. This framework can yield greater business outcomes if it is properly designed. To budget for these programs, it is important to predict employee performance as it relates to the business rules of the program. This is similar to sales forecasting by product line.
Allocated Budget - Using allocated budgets, each division, vice president, location, or manager is allocated a budget for a specified period of time. Budgets are based on stated criteria, which might be:
- A pre-determined amount by employee (e.g., $200 per employee per year). Dollar amounts are translated into appropriate award or recognition currency, usually either points or access codes.
- A per-employee amount based on a percentage of payroll.
- A flat amount allocated to an organizational group or entity. Non-redemption of points is another budget consideration in point programs. Not all points issued to employees are actually used to order awards. Nonredemption is usually in the 10%-15% range and should be used in budget calculations. Also, consider whether your incentive or recognition partner is billing on a points-redeemed model or a points-issued model. While there are cost benefits to both, it is important to understand which model will work best with your budgeting needs.
Next Steps
Rewards Definitions
Most Common Recognition Events