How Much Should Your Company Spend On Employee Recognition?

Employee Recognition Budget

How Much Should Your Company Spend On Employee Recognition?

In June of 2012, Bersin and Associates commissioned a massive research study to prove that recognition programs work.  The results of the study far surpassed their expectations – not only are recognition programs effective, but companies that recognize their employees far outperform those that don’t.

What Are The Benefits Of An Employee Recognition Program?

In the study, an effective employee recognition program resulted in 31% lower voluntary turnover among employees.  This is huge.  Voluntary turnover is when an employee chooses to leave your company, usually for greener pastures.  Voluntary turnover is generally a measurement of how many of the best and brightest your company is losing.  To reduce the loss of your best employees by 31% is a goal worth fighting for.

The research also found that companies with effective recognition enjoyed higher employee engagement, productivity, and customer service, to the tune of a 14% margin over companies with ineffective or non-existant recognition programs.

How Much Should Your Company Spend On Employee Recognition?

The industry standard for effective employee recognition is about 1-2% of payroll.  So if your average employee makes $70,000 a year, you should be spending between $700-1400 per year to encourage, engage, reward, and motivate that employee.

What Is The Most Effective Way To Spend Your Money On Employee Recognition?

1-2% of payroll is a significant investment, so you want to make sure you see a return on that investment.  There’s no point pouring money into a program that doesn’t bring results.  A lot of companies seem to think that if the money is being spent, their job is done.  But not all employee recognition programs are created equal.  In many of the less effective programs surveyed, nearly half of the employees weren’t even aware their company had a recognition program, and the vast majority of employees did not feel they were being recognized regularly.  This was in sharp contrast to the 80% of senior leaders who believed that effective recognition was indeed taking place.

We’ll talk a lot more next week about the Dos and Don’ts of effective employee recognition, but for now I’ll give two simple guidelines:

1. Don’t Base Your Recognition Program Around Tenure Or Seniority

This is not motivational to employees, and often it’s the younger and newer employees who need the most encouragement in the workplace.  Besides, there are so many more important behaviors to promote than simply “sticking around for a really long time”.

2. Peer Recognition Is More Effective Than Managerial Recognition

Whenever possible, involve your employees in the recognition program.  Give them the opportunity to recognize and reward their peers.  A points program can be the best way to ensure that both managers and peers have the opportunity to encourage and motivate employees.

Leah Darrow
stevensonnenberg@me.com

Leah Darrow is our weekly blog contributor for Awardco.com.

1 Comment
  • Emilee Wilson
    Posted at 22:52h, 23 August

    Experience based programs are the most rewarding. I can remember the spa and my volunteer vacation to Africa. This memory goes with my everywhere and gives me bragging rights. The items that I was gifted in the past have ended up in storage. This just goes to show how we view stuff vs experiences. Rewarding employees with something that they would never do on their own is key and the best part is, it will be a win, win, win situation for everyone!