- Do your research and ensure you are spending on what will be meaningful to employees.
- As a mid-enterprise company, you can affordably budget for a robust R&R program.
- Spend smartly and efficiently in a way that the program could pay for itself in savings on retaining your workforce.
Did you ever give someone a gift that you thought was just right for them, only to see a look of confusion or a faint, polite smile because the gift really didn’t suit them at all? While we have been taught to be grateful for gestures “because it’s the thought that counts,” when it comes to gifting, rewarding and recognizing, we would all feel much more engaged and satisfied when someone is genuinely excited and feels truly appreciated during an exchange.
We can apply the same thought process as we budget for and build an employee recognition and rewards program that stands out, differentiates your organization and inspires your workforce. By taking steps to lay out the strategy, create meaning, and price out your options, you set the stage for success in the long run, which will go a long way at retaining and reaffirming the value of your team. And as a mid-enterprise organization, a rewards and recognition solution is within your reach.
Step 1. Research and Due Diligence
The first step relies on research and listening to the expectations of your employee membership. Starting with a survey, it’s important to find out what employees would view as valuable in terms of recognition at work, but particularly rewards, which are often of monetary value.
Questions like, “would you prefer gift cards or experiences? Or, “would your team prefer reward gifts for individual use, or shared company events and outings?” can lead to feedback you might not have expected. You may find out the answer is a little bit of both and more importantly, you will probably learn that something as critical as recognition and reward at work, works best when it is personalized and customized to an individual’s choice.
Of course, accounting for every individual choice might not always be feasible. But, for fairness and consistency, you can manage spending issues by setting caps and ranges for what is available. Someone’s preference for a gift card versus a lunch can always be managed in order to maintain a budget.
Lesson takeaway: Rewards and recognition is not one size fits all, but costs can be consistent no matter what’s chosen.
Step 2. Determine a budget percentage to apply to your program
We know our teams are worth their weight in gold, but nevertheless, organizations still must take care to ensure that they budget efficiently to meet recognition expectations and to spend their reward dollars wisely. Surprisingly, in many instances, a program can in some ways pay for itself, especially for mid-enterprise organizations that employ 2K-5K individuals. There could even be cost savings, once you break down cost-per-employee for someone who is engaged, productive and supportive of the organization versus the costs in turnover, lost productivity and business interruptions as a result of unhappy team members.
What’s the magic number for a Rewards and Recognition budget?
Industry and organizational size among many other factors dictate the following guidelines, however, in recent surveys, SHRM suggests that while some companies might budget as much as 10% of their payroll on a rewards program, the average amount is more likely 2% and the median for company spend is 1% of their payroll. While 1% may seem like a small number, according to the same recognition survey, it can have a huge impact, with companies three times as likely to rate their program as excellent when they spend at least that much.
What does that mean in real dollars?
If we were to create a math problem based on Company XYZ:
- Say you have 2,000 employees with average payroll cost at $50M annually. At 1% of your payroll cost, you would effectively be budgeting $500,000 dollars for a rewards program each year.
Based on a 260-day work year (5 days per week), the average spend on an employee to create a happy workplace would be just at $1 per day.
Is it worth it?
According to the same SHRM survey, “68 percent of HR professionals agreed that employee recognition has a positive impact on retention and 56 percent said such programs also help with recruitment.”
From a retention standpoint, that is a very important statistic, because NOT retaining employees can be a real hit to the budget as well. According to Gallup, “the cost of replacing an individual employee can range from one-half to two times the employee's annual salary.”
So, by using the same math problem for Company XYZ above,
- With surveys indicating that 1 in 4 employees plan to leave their jobs post-pandemic, for Company XYZ, if 25% of their 2,000-person workforce voluntarily leaves, the turnover cost could could cost over $12million, based on 500 lost employees at half their annual salary of let’s say $50K (each)
And that’s the low end.
A more conservative turnover cost cited by Employee Benefit News indicates it could cost approximately 33% of an employee’s annual salary to replace them. Using the formula above, that’s about $8million!
At the same rate, even at a 10% turnover rate, that’s a potential cost of a little over $3million.
A rewards program for $500,000 sounds better and better!
While budget is a main factor, R&R transcends dollars
All the research points to the importance of recognizing and rewarding your employees. Human nature itself craves appreciation for their efforts. And, this can ultimately be quantified as it applies to the workforce. For example:
- Gallup again notes that the #1 reason people leave their job is due to lack of recognition
- It must be true, because Deloitte research suggests that there is 31% lower voluntary turnover when a company has an R&R program in place.
- Deloitte also notes that “employee engagement, productivity, and performance are 14 percent higher in organizations with recognition that those without.”
It is convincing research and supports the notion that a happy, valued workforce is a productive workforce.
An employee rewards and recognition program is a thoughtful combination of moments, gestures and celebration. Thank you notes and words of encouragement are cost effective, if not free, yet are still some of the most important contributions towards a work culture that values their team. Fold that into a broader, official program designed for mid-Enterprise companies that includes organized peer and social recognition, performance feedback, incentive plans and milestone celebrations, and you get a comprehensive selection of recognition tools that not only makes your team feel good, but makes fiscal sense as well.
It’s a clear win-win.