April 12, 2024
March 18, 2024

Employee Recognition Budget During a Recession—Spend More or Cut Back?

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Recession. It’s a word we’ve all been hearing a lot recently, business leaders are right to worry about the possibility. Whether we actually dip into a recession or we simply skirt the edges of one the uncertainty and budgeting concerns are real.

Many businesses are looking for ways to tighten their belts and save money. Unfortunately that is leading some businesses to look at their recognition programs with a critical eye. Is paying for recognition programs worth it during a recession? Should you cut back on your rewards and recognition budget? Before diving in let’s start with the basics.

What Exactly Is a Recession?

A recession is considered a significant decline in economic activity that lasts for at least six months and could last for years. Other signs include negative gross domestic product (GDP), rising unemployment levels and falling retail sales. This type of economic downturn is actually a regular part of the business cycle—recessions are natural, even if they’re scary.

Are We in a Recession Now?

According to experts, no, we aren’t in a recession yet, and it’s not an unavoidable outcome either. While inflation is higher than it’s been in years and gas prices are soaring, there are other more positive signs. Unemployment is extremely low, wages and salaries are on the rise and the economy is still in decent shape.

But with global conditions such as the conflict in Ukraine and aftereffects of the pandemic, uncertainty remains. Businesses are right to start looking at how they can save money and prepare themselves for the worst.

How Can a Recession Affect Businesses?

When the economy struggles, businesses struggle. People lose jobs, which makes them less able to make purchases, which makes businesses less profitable, which makes them more likely to fire more employees. It’s a vicious cycle that can be frightening to think about. Some businesses are already taking steps to avoid this, such as:

  • Freezing new hiring
  • Cutting budgets and reducing expenses
  • Keeping inventory low

These types of steps can be helpful and healthy, but what if you cut too much? How do you maintain a healthy, happy culture with great benefits while also saving money? 

This brings us to the main point of this article. Employee recognition. Some businesses believe cutting it is a good way to save money. One of the most common justifications for this is that turnover rates fall during hard times, so recognition is unnecessary. However, let’s look at the stats to see if that’s true.

How Are Recession Fears Affecting Resignations?

People are still quitting their jobs in record numbers. Even as inflation shoots upward and recession fears loom over everyone, employees are still leaving jobs where they don't feel valued or cared for. The latest data shows that over 4.4 million Americans quit in April 2022, and one-third of employees say they are considering quitting in the next year.

Business culture is still vitally important, even in pre-recession circumstances. You still have to make your business a place that employees want to be. And considering that 74% of employees plan on quitting within a year because they only receive minimal recognition, employee recognition should be a huge part of your culture.

According to Gallup, employees who aren’t recognized regularly are twice as likely to quit as those who are recognized. And in the continued Great Resignation, employees are more likely to quit than ever. With a potential recession around the corner, now is not the time to lose your talent because of lacklustre recognition programmes. To use a sports analogy, that would be like trading away your best players right before the championship to try and save money. 

In actuality, now is the time to invest more than ever into employee recognition and into your people. While budget cuts may be necessary, employee rewards and recognition shouldn’t be included in that step.

Budgeting for Recognition in a Recession

First off, let’s be clear: recognition doesn’t always have to cost money. You should definitely invest in awesome gifts, prices and rewards, but inexpensive (or even free) recognition is just as effective. Things like handwritten cards, sincere compliments and public shoutouts are a great place to start!

Monetarily, though, how much you should invest? According to SHRM, the accepted standard for an employee recognition budget is 1% of payroll. And if that’s what you can do during these difficult times, that’s awesome! However, we would recommend doing even more—2 or 3% of payroll can create amazingly rewarding recognition programs that make every employee feel appreciated, excited and valued.

A jump to 3% of payroll for recognition sounds crazy, right? Especially during a potential recession. But there’s a method to our madness: companies with a culture of recognition have 31% lower turnover rates. And for every person that quits, you have to pay anywhere from one half to two times that employee’s annual salary to replace them. That means that if an employee making $50,000 USD quits, it’ll cost you anywhere from $25,000 USD to $100,000 USD to replace them. And don’t forget, one in three Americans are considering quitting in the next year. That’s a lot of money to replace them!

However, with an investment in employee recognition, you can cut down turnover by 31%, effectively cutting your turnover costs by a third. Besides boosting your retention, though, what other ROI can you expect when you build out robust recognition programs?

Recognition ROI for Recession-Conscious Businesses

We’ve already written extensively about the ROI of recognition—here’s a blot post that goes into great detail about it! (And here’s another one specifically about the psychological benefits of recognition; check it out!) However, we never get tired of talking about why rewards and recognition should be a priority, even during a recession. So to quickly summarise, here are some of the best benefits you can enjoy when you invest in recognition:

  • 78% of employees who feel appreciated are more motivated.
  • 69% of employees would work harder if their efforts were recognised.
  • 90% of employees are more satisfied at work when they’re recognised by a peer.
  • Companies with sophisticated recognition programs have 12X better business outcomes.
  • Employees are 14% more productive when they’re recognised.

These general stats are awesome, but do you want to see even more ROI that’s personalised for your business? Check out our ROI calculator!

Recognition in a Recession: A Necessity for Everyone

Recognition isn’t only for the good times; businesses should invest in recognition during both good times and bad. It may seem counterintuitive, but investing more money in recognition can actually make companies more money in the long run. With greater productivity, more engagement and more motivation, your bottom line is going to improve more than cutting recognition could ever save you.

Employee rewards and recognition is all about showing appreciation for the people who give you their time and their efforts. While a comprehensive recognition program will give you the best ROI, recognition can be as simple as a sincere expression of gratitude. And when you take the time to provide recognition in any way, you’ll enjoy a culture of happiness and satisfaction, regardless of recessions, pandemics and anything else the world throws at you.

Jefferson Hansen
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An avid lover of fantasy books, a proud Hufflepuff, and a strong proponent of escapism, Jeff has a love of good storytelling. He relies on that for both his professional work and his writing hobby (don’t ask about the 10+ novel ideas collecting virtual dust on his computer).