Research reveals that those employees who are often recognized appropriately for the time and effort they have invested in an organization usually increase productivity, deliver better customer service, and have a longer tenure with their employers, among other benefits. Given all these positive outcomes, it is no surprise that employee recognition is now widely considered a valuable business strategy.

Setting up a recognition program as a tactical scheme that drives core organizational goals requires an investment on the management’s efforts. Think of this worthy program this way – an insufficient budget for the program is like trying to light up a stadium with a 30W light bulb. Sure you’ll illuminate a small area well, but your efforts won’t have an impact that’s felt deeply or widely.

Conversely, an appropriately funded recognition program is like a 20,000W light bulb that’s capable of illuminating the entire dome at night brighter than a noon-day sun. In other words, setting the appropriate budget can enable you to touch all employees in every department with the power of recognition and appreciation. 

Types of Budgets for Employee Recognition Program

There are three types of budgets to consider for your employee recognition program. They are:

  1. Fixed budget- This is the type of budget that’s intended for a recognition program that is set to occur at a specified period of time, usually after 12 months. The organization rules of the recognition program are then tailored to stay within the confines of the budget.
  2. Variable budget- This type of budget is usually based on outcomes and can vary depending on the actual performance achieved. To use this kind of budget, you must first set up a performance-based program that objectively and subjectively measures employees.
  3. Allocated budget- This type of budget is usually based on outcomes and can vary depending to the actual performance achieved. The budget can be a pre-determined amount by the employees, i.e. $250 per employee per year, a per-employee amount based on a percentage of payroll, or a flat amount designated to a group.

Budget Considerations for your Employee Recognition Program

To set the appropriate budget, you need to make the following considerations:

  • Save by using one platform- Managing many recognition programs on different platforms can be costly. In order to get a holistic view or how your plan is working, you should focus all your measurements in just one place. This will help streamline the process and enable you to consolidate all your recognition efforts for cost savings.
  • Customize your approach- Depending on the goals you want to achieve, decide what type of employee recognition program should be prioritized. The cost varies from one type of program to the other. Therefore, you should customize your approach and balance your efforts to fit the target goals you are trying to achieve.
  • Consider all costs- Before you begin the recognition program, it is important that you find out beforehand what costs will be involved. For instance, some programs such as years of service programs are exempt from payroll taxes, while others are not. Be sure to consult your tax adviser so that you can plan a budget that takes this into consideration. Other costs to consider include sales tax, shipping and handling costs.

While cash rewards are great, they can be costly for both the employer and the employee. This is because the IRS requires that cash rewards be treated as income by the employer, thus subject them to income and employment taxes. Use of recognition awards, certificates and plaques is the best alternative as there are no other additional costs involved.