April 26, 2022
January 20, 2021

Employee Recognition Budget: What Should You Spend?

Employee Recognition for a Modern Workforce
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If you’ve been following Awardco for any length of time, you know that we’re passionate about recognition. You’ve also probably heard us talk about the benefits of an effective employee recognition program, such as reducing turnover, reducing frustration, and increasing engagement and happiness (and if this is your first time hearing about this, look at those amazing benefits!).

What we haven’t talked much about is the money aspect of it all. It’s easy to say you should create a culture of recognition in your workplace that fits your budget, but you may not be sure how to do that. So if you’re wondering how to create an employee recognition that’s right for you, you’ve come to the right place.

Recognition Budget by Percentage

While many different companies spend a variety of different percentages of their payroll on employee recognition, according to SHRM, the accepted standard is 1%. And while 1% of payroll is a decent amount that would allow you to offer rewarding recognition programs, we recommend an investment of at least 2% (or even 3%).

We say investment because employee recognition really is a way to invest in the most valuable part of your business: the people. To illustrate, let’s look at some math (don’t click away yet! It’ll be simple).

Let’s say that your total payroll amount is $500,000 annually (though this example applies whether your payroll is $10,000 or 10 million). If you go the 1% route, you would spend $5,000 on recognizing and rewarding your employees throughout the year. Not bad, right? But that’s the bare minimum. And with the Great Resignation still in full swing, the bare minimum may not cut it anymore.

According to new research, 1 in 4 employees quit in 2021. And for every single employee that quits, you can expect to pay anywhere from one half to two times their annual salary to replace them. So, if you employ 100 people, and each of them makes $50,000 a year, you would need to pay at least $625,000 to replace those who quit. Every year. Kinda scary, right? That’s a lot of wasted Benjamins.

But now let’s think about bumping your employee recognition budget up to 2% or even 3%. You would spend closer to $10,000 or $15,000, true, but because recognition lowers voluntary turnover by 31%, you would actually save $193,750 each year on turnover costs. PLUS recognition boosts employee engagement by 2X, which in turn makes employees more productive, which then saves you even more money. You give a little to gain a lot! See that investment we were talking about earlier?

Long story short for you skimmers out there, we recommend dedicating 2-3% of your payroll to employee recognition programs.

Recognition Program Recommendations

Now that you know how much money you should put into employee recognition, which types of recognition programs should you use? Which types of recognition are the most effective? Here are a few examples of ones that we’ve seen be successful. Plus, we’ve included a basic idea of how much each type of recognition program should cost.

Celebratory Awards

When it comes to celebratory programs for employees, we recommend at least three programs. “Three programs?!” you say? Yes, and here’s how:

Every single employee has at least three events that you can celebrate with them: the first is their service anniversary. Otherwise known as tenure awards, years of service awards, or workiversaries, employee service rewards are recognitions you give an employee for years of service at the company.

Second on our list of celebration-worthy events is birthdays. Employee birthdays are a great opportunity to celebrate each individual in the company as well. Make each person feel noticed and valued by genuinely congratulating and celebrating their time and work each year.

As a third celebratory program, make sure everyone feels recognized during the holidays (whether you celebrate Christmas, Kwanzaa, or Chinese New Year). Better yet, make Employee Appreciation Day (the first Friday in March) a regular thing at your company to ensure every employee is celebrated several times throughout the year.

These types of celebratory events, because they’re aimed at recognizing all of your employees throughout the year, should take up around 50% of your allocated recognition budget.

Pro tip: Awardco helps you automate these types of celebration awards so that you don’t have to remember all of these dates yourself.

Exceeding Effort Recognitions

Some recognitions should be aimed toward employees who go above and beyond. Spot recognition programs help immediately recognize someone for their efforts, and they’re a great way to keep employees engaged and happy. Whether Bill from accounting helped you jumpstart your car or Sandy from sales exceeded her quarterly goal, spot recognition programs are great for celebrating efforts both big and small. With Awardco, we offer a quick and easy way for both peer-to-peer and manager-to-worker spot recognitions on our platform. Plus, you can choose whether to make these monetary or not.

Another way to recognize employees who go above and beyond is with wellness programs. These programs could be anything from a gym membership to setting fitness goals to planning out ways to eat healthier. Then, when people hit or exceed their wellness goals, they get recognized for their awesomeness!

If you want these sorts of recognition programs to be monetary, we recommend keeping your budget for these at around 33% of your total recognition budget. Fewer people will achieve these types of programs, so even though you have less money in the budget it will go farther than you think.

Reward Programs

Now you have ways to celebrate each of your employees a few times throughout the year and recognize those who put in extra effort. Plus, you’ve already nailed down 83% of your recognition budget to the programs that reach the most employees! So where should the rest of your employee rewards budget go?

Reward programs are great for recognizing and rewarding employees who are the cream of the crop. Doing something like an Employee of the Month program will allow you to recognize the top talent at your organization, which will then help you retain that talent. And with 17% of your recognition budget aimed at this relatively focused recognition, that money goes a long way to the stellar performers who reach these lofty heights!

So now you know how to reimagine your recognition programs and set up a budget that works for you. The last question, then, is why is all this worth the effort?

Recognition ROI

Let’s bring this discussion full-circle. We’ve talked about how you can budget for recognition and some program ideas to include, so let’s emphasize the “why” of recognition (we have a whole other blog post about this topic too!).

As we’ve mentioned above, 1 in 4 employees quit their jobs last year. On top of that, 85% of employees say they go to work disengaged on a regular basis. Your employees are the backbone of your company, but if 25% of them are leaving every year and the majority of those who stay aren’t engaged or interested, that backbone may have some serious osteoporosis.

Frequent recognition:

  • Lowers voluntary turnover
  • Attracts new talent
  • Enhances focus and productivity
  • Enforces company values

All of these benefits do two things: increase your profitability and improve employee experience. Find an employee recognition platform that can help you take advantage of these benefits (and help you figure out your recognition budget) to fully see the benefits of specific and effective recognition programs.

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