So, you understand the benefits of employee recognition, you've sold the idea to your leadership team, and now you need to figure out how much to budget for your employee rewards program.
First, let me tell you a story. 📖
(But if you’re not interested, jump straight to our explanation of rewards budgeting!)
When we first launched Bonusly, we gave our customers a choice: they could use the platform to give recognition with or without a monetary reward.
With the non-monetary option, users recognized their peers with points for helping on a project, going above and beyond, or generally doing something awesome. In this case, the points had no financial value. With the monetary option, users recognized one another with points for the same things, however, the points were assigned a cash value and could be exchanged for meaningful rewards and perks. In both cases, point totals, participation, and performance were monitored with leaderboards.
Almost immediately, we noticed a significant drop-off in user participation at companies that went with the non-monetary configuration. Companies that chose not to invest in real-world rewards for their employees were experiencing noticeably lower engagement rates than those that chose to give Bonusly points backed by monetary rewards.
The significant amount of user data we collected over 18 months provided striking evidence that non-monetary gamification does not sustain long-term participation. On the other hand, companies that invested in monetary rewards saw double the participation rates of those using non-monetary points during the same time period.
Ultimately, deciding whether your recognition and rewards program provides monetary or non-monetary rewards can be the make-or-break factor of your program's success.
We talk more about employee recognition and rewards best practices here:
-> Complete Manager's Guide to Employee Recognition.
Now the question is: How much should you spend on your employee rewards budget?
What to consider for your employee recognition and rewards budget
Every organization’s total recognition and rewards spend will vary based on the number of employees you have.
You can start with our simple Rewards Spend Calculator to help you gauge how much you should spend on rewards per employee. The average budget for employee recognition is $275 per employee per year or $23 per employee per month. The amount your company budgets may vary based on what you choose to recognize your employees for.
At Bonusly, we've been helping companies do employee recognition and engagement the right way with our top-rated solutions for over a decade. We recommend the following best practices based on our experience and customer averages to help companies determine their employee recognition and rewards budgets:
- For peer-to-peer recognition programs (similar to Bonusly)
- We recommend spending between $5-20 per employee per month or $60-240 per employee per year.
- Bonusly customers spend an average of $20/employee/month on peer-to-peer recognition points.
- At companies with between 500 to 5,000 employees, it often makes sense for managers or leadership teams to get 25-200% more budget to ensure they can recognize their entire teams.
- For celebrating birthdays at work
- We recommend spending at least $5 per employee to cover the cost of a cup of coffee or a celebratory treat.
- Bonusly customers spend an average of $10/employee for birthday rewards.
- For welcoming new employees
- We also recommend spending at least $5 per employee
- Bonusly customers spend an average of $5/employee on welcoming new employees.
- For work anniversaries
- We recommend tiered amounts based on tenure beginning with $50 for one-year anniversaries and scaling up from there.
- Bonusly customers spend an average of $22/employee on anniversary rewards.
- The larger these awards are, the more they will serve as incentives for employee retention.
- Typically, companies increase budgets significantly for important milestones like 5, 10, and 20-year work anniversaries.
We talk more about employee recognition and rewards best practices here:
-> Complete Manager's Guide to Employee Recognition.
Of course, your rewards budgeting shouldn’t just consider the money involved. Here are a few other factors to consider.
Administrative time
In the quest for HR teams to cut costs, we forget the work and time that goes into running a manual recognition program. For example, if you run a nomination-based employee recognition program, here are just a few steps you’d have to manage:
- Logistics: You need to determine why (Why should employees be nominated?), how (What kind of recognition is valuable and meaningful to winners?), where (Intranet? Chat tools? Forms or surveys? Email?), and when (Once a week? Once a month? Twice a year?) for your nomination program.
- Communication: Once you decide on logistics, you'll need to communicate the details to your employees to make sure they understand the process.
- Participation: For an effective program, your employees need to buy into it and actually participate. How will you ensure everyone nominates someone?
- Equitable nominations: You can’t have the same people getting nominated and winning every time! How will you make sure the process is fair?
- Determining a winner: You'll need a committee that is ready to read through nominations and crown a winner, or you'll need to select a winner based on votes from your employees.
- The reward: You'll need to decide on and acquire a prize, and determine whether to spend money on the extra fanfare of making the award special for the winner.
That’s a lot of time and effort!
Even if ad hoc recognition seems simpler, it can still take a lot of administrative time. Do you track expenses for all employee gift cards and presents? If you have employees in multiple offices or working remotely, how much time do you spend running to the post office, and how much does the postage cost?
Don’t even get us started on recognizing birthdays and work anniversaries.
And how do you calculate taxes? 🤯
Honestly, it takes a lot of work to ensure your employees are properly recognized and rewarded for the hard work they do.
If you want that time back for other productive tasks, you might want to consider recognition software to automate many of these processes.
Taxes
As we mentioned, taxes on employee rewards can be confusing, and the process is made even more stressful by the possibility of being penalized for doing them wrong! 😅
Cash and prizes awarded to employees can be considered taxable income, which is just a liability when you’re running a manual recognition program.
It gets even harder when you’re relying on managers across the organization to keep track of and log expense receipts. Plus, you might be missing out on the benefits of peer recognition if you're using a system of top-down-only recognition.
Your tax situation can quickly get unwieldy, and the peace of mind you'll get from having all of that information present in a central place—like recognition software—can be priceless.
Impact
You’re considering implementing a recognition program for a reason, and it’s likely because you know it’ll make a difference! There is a strong correlation between effective employee recognition and increased employee engagement. According to our Employee Engagement and Modern Workplace Report:
While 71% of highly engaged organizations recognize employees for a job well done, the same is true for only 41% of less engaged organizations.
However, you'll want to make sure the recognition you provide actually makes an impact by including the six qualities of effective employee recognition:
If you’re skeptical about the idea of spending part of your budget on employee rewards and recognition, consider the ROI of increased employee engagement at your organization.
Gallup’s meta-analysis of over 112,000 business units discovered that organizations scoring in the top 25% for employee engagement experienced these benefits compared to the bottom 25%:
- 10% higher customer loyalty and engagement
- 23% greater profitability
- 18% more sales
- 14% greater employee productivity
- 18% less turnover for companies with historically high turnover (those with average annual turnover rates above 40%)
- 43% less turnover for companies with historically low turnover (those with average annual turnover rates at or below 40%)
Increased employee engagement gives your organization a competitive advantage—a key thing to keep in mind when you’re considering your rewards budget.
Calculating the numbers
That’s a lot of factors to keep in mind, isn’t it? 😅
Luckily, we just built a tool to make this process a little easier. 💸
Check out our Rewards Calculator to play around and plug in some numbers!
For a more tailored experience, reach out to one of our recognition experts! Discuss your recognition needs and company culture, and even receive a customized budget that works for your organization! 🙌
Bonusly's software can help you effortlessly plan, implement, and budget employee rewards and recognition. Try our program for free or request a demo to speak to one of our employee recognition and engagement experts to get started today.
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