How To Budget for Employee Recognition in Your Organization

Employee rewards and recognition play a crucial role in creating exceptional employee experiences and also impacts business results. Organizations that integrate recognition into their company culture increase their odds of:

• Great work (12x)
• High employee engagement (9x)
• Thriving culture (8x)
• Employee attrition (–29%)
• Employee burnout (–80%)

Employees who feel recognized and appreciated tend to do great work and stay longer. But recognition must be meaningful, personal, and frequent in order to be impactful. And you’ll need resources and the right budget to ensure recognition is done well and effectively.

The problem? Many organizations struggle with determining an appropriate budget for employee recognition. Read on to learn how much experts say you should spend, and how you can fully leverage your employee recognition budget.

How much should I spend on employee recognition?

The question many HR leaders have is how much they should spend on employee recognition. Below, you’ll find a few sources on how much organizations should budget for employee recognition programs:

• SHRM recommends at least 1% (or more) of total payroll
• Aon says 0.25%-3% of your total HR budget
• Recognition Professionals International (RPI) recommends at least $100-$150 per employee per year on performance recognition alone

Based on our work with thousands of clients around the world, O.C. Tanner recommends companies set aside $200-$350 per employee per year on recognition. This includes things like:

• Daily formal and informal recognition
• Service award recognition
• Employee appreciation events
• Holiday recognition
• Onboarding recognition
• Specific recognition initiatives and challenges
• Company-wide celebrations

Harvard Business Review reports that Fortune 500 companies spend more than $2,500 per employee per year on benefits and perks but aren’t giving employees what they actually want. Rather than fancy perks and benefits, employees are looking for connection, growth, purpose, and to feel appreciated—all things employee recognition provides. Compared to the high expense of turnover, the investment in recognition is small.

Almost half (47%) of HR professionals say turnover is a top workforce challenge for them. With the cost of replacing just one employee in the hundreds of thousands of dollars (not to mention the lost knowledge, skills, and output during the time it takes to hire a replacement), it makes sense to maximize your employee recognition budget so your people feel valued, fulfilled at work, and want to stay.

What should I include in my recognition budget?

Your employee recognition budget should include recognition for a variety of accomplishments and contributions. Many companies reserve formal employee recognition for events like Employee Appreciation Day. But recognition and appreciation should be more frequent than once a year.

Research from our Global Culture Report suggests breaking up recognition throughout the year in smaller recognition moments is more impactful than spending it on a once-a-year recognition event. Smaller, more frequent moments of recognition, built into the daily employee experience, ensure recognition is integrated into your company culture.

Here are the types of employee recognition programs you should include in your budget for recognition:

1. Recognition during onboarding to welcome new hires.

Have team members send eCards to make new employees feel part of the team, give them a symbolic gift to connect them to your company early, or send a swag box to appreciate their decision to join and get them excited about working with you.

2. Recognition for daily extra effort and teamwork.

Peer-to-peer recognition builds connection, belonging, and a sense of team. Enable peers and leaders to say thanks whenever they see an employee giving extra effort or helping someone out.

3. Above and beyond recognition for great work.

All employees want to feel like they are contributing, doing great work, and finding meaning and fulfillment in their jobs. Recognize employees when they go above and beyond, hit a goal, innovate, or accomplish something great.

4. Employee service anniversaries and milestones.

Service awards aren’t just about recognizing how long an employee has been with your company—they tell the story of their contributions and accomplishments over time. Make celebrating work anniversaries more meaningful by including peers and family in the recognition.

5. Recognition for building skills or working on special projects.

Employees want to feel like they are growing and developing even if they aren’t being promoted every year. Recognize them when they learn new skills, get certified, participate in a special project, or do something outside their normal job role.

6. Business unit or department-specific initiatives or goals.

Individual departments or teams may have specific goals or targets they want to reach and want to recognize employees when they accomplish them. Or perhaps it’s a time-sensitive company initiative that you want employees to participate in. Reward employees for these achievements.

7. Company celebrations for anniversaries, milestones, and company achievements.

Whether it’s your company’s 50^th anniversary or you launched a new product, won a huge client, made a list like Great Places to Work, had a great financial year, completed a merger, or made it through a tough crisis, there are countless reasons to celebrate. Be sure to include this type of recognition in your budget for employee recognition programs.

8. Industry holidays and end of year recognition.

Employee Appreciation Day and industry holidays like Healthcare Week or Manufacturing Day can’t be missed. Many organizations also like to recognize their people during the end of the year or other calendar holidays.

Tax implications: Be sure to think about taxes when you are putting together your recognition budget. Whether it’s sales tax on merchandise awards, payroll taxes, or navigating added income tax for your employees, you’ll want to account for this in your budget for employee recognition programs.

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How to manage your recognition and rewards budget

Once you’ve set up your budget and rolled out your recognition tools, you’ll want to regularly review recognition spend.

1. Use a budgeting tool that has a robust dashboard and in-depth analytics. The best recognition solutions feature a built-in budget tool to help you allocate budget (by leader, team, department, etc.) and manage program spending in real time. They should let you easily set up, track, and adjust issuing monetary recognition when needed, and provide constant visibility to prevent under or overspending. Use these tools in your budgeting process each year to ensure recognition is abundant at your organization.

2. Check on recognition activity and spend often. Review monthly to identify which areas of your company are giving recognition and which may want to give more. Monitor spending regularly to ensure you are on track with your budget, see trends in recognition and spending activity, and measure the impact of the recognition on your company culture and even retention risk.

3. Use it or lose it. If you have leftover budget at the end of the year, don’t let it go to waste. There are so many reasons to recognize. Encourage leaders to use up their recognition budgets with an extra push to recognize extra effort, teamwork, or great work happening on their teams.

Set up a company or department initiative to drive innovation, productivity, or safety to achieve business goals. Give company-wide recognition for a great year. Use all of your recognition budget to ensure recognition is integrated into your company culture and maximize the power of appreciation.

For ideas on how to maximize your recognition budget, check out 3 companies who creatively thanked their people:

BlueScope Australian Steel Products wanted to recognize their people after a strong financial result in a hard year. They thanked their people for their unwavering passion and purpose through a selection of gift cards employees could choose through Culture Cloud.

American Airlines sent thousands of team members recognition points to thank them for their perseverance during the hardest years of the pandemic, and special recognition for those who worked on getting the Payroll Support Program extensions passed.

Spartan Light Metal Products recognized 60 years of great work with a special gift: a Spartan-opoly game customized to them using their locations and the tools employees use at work every day.

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Make sure you maximize your employee recognition budget and get the most out of recognition.