How Much to Budget for successful Employee Recognition?

We certainly don’t mean to be flippant, but the only plausible answer to this question is “Whatever it takes”! What we are certain about is that the vast majority of employee recognition programs are underfunded. Then again we sell these for a living so that’s what we should say….right?  Not really.  These are programs are underfunded because the vast majority of recognition programs are not measured with regard to any meaningful objective result that finance folks can touch and feel. 

There is a good deal of research showing that the companies with highest the employee engagement have the best bottom line results and that employee recognition is essential to improving employee engagement. While the studies are sound, in our experience, the C-suite hasn’t really bought into them.  It would be hard to find an executive who says he/she doesn’t agree with recognizing employees. But when asked how much to spend, there draw a blank. 

Recognition budgets are usually put together top down and the recognition program planners then try to implement a program that makes sure they don’t spend any more money than that.  Improving employee satisfaction, improving the culture, improving communications, improving anything takes a back seat to not spending any more than the given budget. 

Traditional employee incentive programs that did target a true bottom line result were budgeted differently.  Companies used a specific % of income during the program period as a method to determine how much to spend.  The % was 1-3% of income of the participants in the program for a long term (annual) program and 5% to 15% for shorter ones.  Or, they set aside a % of the sales or profits generated by the program as the budget. 

If you want to determine how much your senior management believes in the importance of employee recognition just do some simple math.  Take 100% of any monies you spend on any non-cash awards you use to recognize employees and divide that number by the number of your employees.  Then honestly ask yourself if you think that number would truly motivate you to improved performance?

So when you are considering a budget for employee recognition, the closer you can get to objective achievement numbers that can be measured, the closer you will get to a budget that will prove motivational.  Otherwise you will be left with taking the number you are given and trying to do the best with it. This is the recipe that produced the ubiquitous Person of the Month programs that were negligible in improving performance of your core employees.

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