What’s Your Budget Spend on Recognition?

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How much should you spend on employee recognition programs?

You would think it was a simple question to get an answer for. But budget questions often get evasive answers especially from those in the recognition profession and by vendors.

Why is that?

The main trouble is the question itself. People see different things when they hear “recognition budget”.

Asking broadly about “recognition programs” covers a lot of ground. No one has figured out the exact spend on all the various facets of recognition programs.

Percentage of Payroll

Take a look at the following table from the WorldatWork’s 2015 Trends in Employee Recognition giving the percentage of payroll budget spent on recognition programs.

Table: 2015 Trends in Employee Recognition

Table: 2015 Trends in Employee Recognition

The association members who responded to the survey simply answered the question, “What percentage of your payroll budget is used for recognition programs?”

Without any other parameters 65% of the compensation and benefits professionals questioned said they spend 0.1% to 0.9% on their recognition programs. There’s another 20% between 1.0% and 1.9% but very few go above that.

Allocation of Budget

Most people focus on the costs of tangible recognition and rewards like awards, incentives, gifts and points. There is no doubt this item consumes the bulk of budget costs.

Industry experts have suggested 65% to 70% of your budget may be allocated towards awards or similar tangible items. Administration costs may take 10% to 15%, communication another 15% and measurement 5%. However, the unique needs of each organization and their recognition strategy will carve out the budget pie differently.

Factors Impacting Budgets

Budgets will also vary by the employee count, the industry you’re in and on several factors including:

  • Number of recognition programs in place
  • Investment in technology for automation of programs
  • Reporting and tracking of recognition activities and budget spend
  • Alignment of recognition with the business strategy
  • Degree of customization and branding needs
  • Communication planning and content creation
  • Education and training resources for recognition
  • Performance and recognition data and analytics
  • Administration and services

A Canadian study showed healthcare and education seem to be the lowest funded industries for recognition (0.06% of payroll budget) in contrast with financial services (0.49%) and high technology (0.39%) [See Conference Board of Canada, Making It Meaningful: Recognizing and Rewarding Employees in Canadian Organizations, 2011]

But, again, no one asked for the specifics of what the budget amounts actually covered.

Best Advice on Budget Spend

With all these challenges with budget allocations I asked 10 professionals who manage corporate recognition programs for their advice for setting budgets. These are the principles they gave me and I give to you.

Principle #1: Get strategic with your budgets

Create a strategy that covers the everyday, informal and formal types of recognition. Align your recognition goals with helping leaders achieve their business objectives.

Principle #2: Measure program effectiveness

You must go beyond operational metrics of program usage and outputs. You need to know how effective recognition is in the eyes of employees and in achieving business targets.

Principle #3: Consolidate all of your programs

Bringing all programs under one portal and management allows you to consolidate separate budgets into one. Sharing of other resources also saves costs.

Principle #4: Create a sustainable program budget

Your goal should be to create a budget that maintains a core budget for essential and strategic programs. You don’t want to be cut every time there are organizational budget challenges.

Principle #5: Build in internal and external accountability

Program owners, managers and employees need to be accountable for the effective usage of recognition. Similarly, vendors need to be transparent with cost and ways to improve.

Principle #6: A reality-check on equality and accessibility

Business units and all employees should see similar programs and no one group should be more privileged than another. A clear recognition strategy makes recognition universal.

Principle #7: Research – do your homework

Always be evolving with your programs and continually be learning what others are doing. Calculate the benefit and cost ratios of your programs so you know their business impact.

Budgets are not an easy question to answer. Start with what you can and then work to build upon that in a strategic way.

Question: How have you effectively managed your employee recognition budget?

Roy is no longer writing new content for this site (he has retired!), but you can subscribe to Engage2Excel’s blog as Engage2Excel will be taking Roy’s place writing about similar topics on employee recognition and retention, leadership and strategy.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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