9 Recognition And Rewards Budgeting Insights You Should Know

Budgeting for a recognition program can get expensive. Depending on your recognition route, you could incur fees from software expenses, reward redemptions, taxes, and more. While a recognition program has associated costs, it can reduce employee turnover and boost company culture. Today, we will review insights to build your recognition and rewards budget.

1. Software Costs Vary Slightly Per Platform

There are many ways to build a recognition and rewards program. Many organizations utilize recognition platforms like Nectar because it helps them create systems and provide feedback consistently.

We’ve discussed software costs in our recent guide on recognition software selection and our breakdown of the best employee recognition software. Most software will have a similar per-employee-per-month (PEPM) model. Where you might see the most difference between software is in implementation fees and contract requirements.

Here’s a quick breakdown of the costs of some of the most popular employee recognition tools:

2. On Average, Companies Give Employees $5-$10 In Points Per Month

When building a recognition program, there are many benefits to adding peer-to-peer recognition. While peers aren’t a traditional recognition source (outside of annual peer reviews), they can help companies recognize employees more often.

It doesn’t take as much money as you think to fund peer recognition. For example, we give all employees at Nectar 100 points (or $10) to recognize team members monthly. Often our team members share quick feedback with 5-20 points attached to their messages.

We see the most success when companies give each employee $5-$10 monthly. This bank of points allows team members to celebrate each other and the excellent work done throughout the month.

When using a tool like Nectar, you can also utilize a use it or lose it system, which allows unused ‘points to give’ to expire at the end of the month. So instead of points rolling over, a new month would reset employees back to their given allowance.

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3. Managers Should Be Given A Base Of At Least $10 Per Month Plus $1 Per Direct Report

Managers play an essential role in team support. We know how intensely managers can impact employee experience and morale. When setting up an employee recognition program, we must give managers the weight they need by extending their monthly budgets.

When utilizing a recognition software, a good strategy for manager budgets is a base of $10 per month plus $1 for every direct report. So, a manager with 20 direct reports should have a $30 budget for recognition.

At Nectar, we recently released a new feature that allows companies to standardize manager budgets. With this feature, you can set the manager base and the dollar amount per direct report. No more updating manager budgets randomly as teams grow (or decrease.)

Another aspect companies should consider is how managers are supported. We put a lot of weight on the employee/manager relationship. We give managers a lot of responsibility on top of their daily duties, and we pay them well for that. But, are there some ways that we can support them and make employee recognition easier? By utilizing analytics and reminders, recognition can become second nature.

Nectar understands the pressure managers are under to get team culture right. Our team insights and weekly reminder emails help managers show up for their direct reports month after month.

4. Most Teams Create A $1,000 Reward Pre-Pay Bank

Funding your recognition program can become a hassle, especially if you pay for rewards as they are redeemed. Funding rewards as they are redeemed isn’t the best option with digital programs because redemptions change month-to-month

When utilizing a digital program, employees could potentially save up a lot of points, or they might redeem a few points at a time. When reward redemption is unstable, utilizing other payment methods are helpful.

At Nectar, many of our customers create a reward pre-pay bank. When new companies join our software, administrators can set up their organization’s pre-pay bank. We typically see companies fund $1,000. As employees redeem rewards, money is drawn from this fund. As the fund gets low, we pull the automatic refill amount to ensure team members always have access to rewards.

Overall, this strategy helps administrators create a better plan for funding while allowing them to set and forget reward funding. In addition, with Nectar’s billing tools, you can always see where your reward balance is.

5. Budgeting For Birthdays/Work Anniversaries Is Easier Than You Think

One of the struggles HR leaders face when dealing with recognition is celebrating birthdays and work anniversaries.

Birthdays can be a source of tension for employees if everyone isn’t celebrated equally. You might know how disappointing it can be to have your birthday skipped while another employee got treats and a card signed by the entire team.

Work anniversaries are also essential to celebrate. Depending on your industry, making it to the first anniversary is a miracle. Employees put in a lot of effort to show up yearly, which deserves a celebration.

Recognition tools can often help you and your team automate these critical celebrations. Additionally, budgeting for these rewards is easier than you think.

Often we see companies give away around 100-250 points (or $10-$25) for birthdays. Budgeting for birthdays is as simple as multiplying the dollar amount you want to give by the number of employees on your roster.

Work anniversaries can get a bit more complex because you might want to celebrate employee service milestones differently. For example, we see many companies build a typical anniversary budget and give extra points for milestone years like 1, 5, 10, etc. In that case, you’ll need to plan carefully and consider where your team members fall on this spectrum. Is anyone reaching a milestone year? Then, plan to spend extra on their anniversary recognition.

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6. Redemption Amounts Won’t Likely Match Points Potential

If you are utilizing a recognition tool, you’re probably budgeting to give away a certain number of points to employees and managers. While these points have a direct dollar equivalent, your redemption amounts won’t likely match the number of points you set to give out when creating your account.

Here are some of the reasons redemption amounts won’t match points potential:

• Employees don’t give away all their points.
• Not everyone redeems the maximum amount of challenges.
• Team members are saving up their points for bigger rewards.
• Workers leave the organization with points still in their banks.
• Employees redeem points for custom rewards that might have a different actual dollar value.

If you are concerned about budgets, looking for a recognition program with extensive finance reports is important. These tools help you spot where money is going so you can make intelligent financial decisions.

7. Expect Reward Redemption Hot Spots During Q4

October through December is filled with reasons to celebrate. Many HR leaders find a higher concentration of reward redemptions during the last few months of the year. As you decide on a recognition program budget, you must consider how your team will enjoy the benefits. Is your company ready for the holiday rewards rush?

Another hotspot that many companies see is an increase in reward redemptions at the end of the month. Employees who log in to send recognition may also spend some of their points on rewards.

One way to combat these hot spots is to build a habit of spotlighting reward ideas throughout the year. For example, we’ve seen success when companies send employee newsletters that feature rewards employees can get in Nectar throughout the year. These spotlights keep employees engaged and give them a reason to visit your recognition and rewards platform throughout the year.

8. Gift Cards Are The Most Popular Reward Redemption Category

At Nectar, we’ve built a complex rewards suite with hundreds of gift cards, company swag, custom rewards, and even a new partnership with Amazon Business. These reward options give employees tons of ways to spend the points they receive from colleagues. We’ve found that gift cards are the most popular way that employees choose to use their points.

As your teams grow, it’s crucial to have a variety of reward options, though. You need a robust number of gift cards so that employees never get bored, and you also need access to other items. Since gift cards may have tax implications, there will be some employees who would rather redeem points for physical items or swag. Working with recognition and rewards vendors who have options allows your team to choose how they receive their recognition.

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9. Consider The Random Expenses For Your Recognition Program

One of the most underrated aspects of recognition program budgeting is staffing expenses. If you have a manual recognition process, you know how much time can go into making it fair. You may have had to:

• Hire a developer to create a program for employees to submit recognition.
• Utilize internal resources to sift through recognition and ensure it gets to the right person.
• Work with managers to make sure that recognition turns into rewards consistently.
• Spend hours wrapping up these shoutouts into a report that managers and team executives can use.

…and that’s assuming you’ve built a good process for recognition. Often, companies just aren’t recognizing their team consistently, causing low morale, negative company culture, and employee turnover to flourish.

No matter how you currently recognize your team, there are considerable costs associated with your recognition program. The hidden costs of time inefficiencies are something companies must be wary of. Many organizations are turning to employee recognition software because it provides convenience. As your company grows, you may realize that spending money to save time lets your HR professionals focus on more pressing matters.

How To Make The Best Recognition And Rewards Budgeting Decisions

To wrap up, it’s vital to review a few best practices regarding recognition and rewards budgeting. There are several critical decisions you can make early on in the budgeting process to create a successful rewards program down the road. Here are some helpful tips on making recognition budgeting easier:

Start Small

Even though there are many things your organization can do to budget for recognition, you may still be on the fence about your budget. If you are unsure, our best advice is to start small.

If you are using a recognition tool, it is vital to use the features as they are intended. Giving points to everyone is the best way to ensure engagement with your recognition program.

However, there are ways to tailor the points given to your company’s budget. For example, while many companies give $5 to $10 in points every month, you might want to start smaller and give employees $3. Then, as you see how employees spend and use their money, you can decide to go up from there. It’s much easier to start small and add points vs. starting big and taking away points.

Reroute Your Funding

You would be surprised how much your company is spending on rewards and recognition now. If your company isn’t actively tracking rewards expenditures, it’s easy to rack up a massive bill at the end of the year.

Often you can reroute the money you are currently spending to create a more effective process. For example, instead of having your budget randomly placed in small buckets (birthdays, work anniversaries, spot bonuses, etc.), you can streamline that process. By understanding what you spend at the moment, you can be intentional about which aspects of your recognition program get funded.

Here’s an example of this in practice:

Celebrating employee birthdays is fun, but there may be more practical ways to spend birthday rewards. At Nectar, companies can choose to give no points for birthday shoutouts while still automating that process. You could sustain a higher peer-to-peer recognition budget by rerouting birthday recognition funds.

Keep An Eye On Your Finances

Another way to make the best recognition and rewards budgeting decisions is by keeping an eye on what you spend throughout the year. Hopefully, rerouting spending is the start of controlling what’s going in and out of your rewards budget.

Another way to keep an eye on your budget is by looking for software with robust financial reporting. You want to look for reporting that updates automatically throughout the month, so you always have a pulse on which points are going where.

Make The Most Of Recognition Software

Depending on which recognition software you go with, you may be able to accomplish several things inside the platform. By understanding what your platform can do, you can save a lot of money and condense the tools you use.

For example, at Nectar, our swag integrations save companies time and money daily. There’s no more scrambling to find everyone’s size, coordinating swag pickups/deliveries, or finding room for extras in the office closet. HR professionals and people leaders can go back to doing what they love instead of becoming a company swag project manager.

With our challenges feature, companies can also build out employee referral programs or learning and development grants, reducing the need for outside tools to manage programs like this.

Connect with the sales and customer success teams of any software you plan to use. By sharing that you want to take full advantage of their software and integrate it into your HR processes, you can begin understanding all the nuances of the software. As you learn the new software, you'll be able to figure out what tools you may be able to stop using or avoid implementing.

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Conclusion

Budgeting for a rewards and recognition program is an essential step, whether you are building an internal program or utilizing software. However, the budgeting process can sometimes be a roadblock to successful implementation if you aren’t sure where the money for this program is coming from or how best to spend it.

Thankfully, there’s a lot of data to help you set a budget for these programs. If you’re ready, you can request a demonstration of Nectar. One of our sales reps would be happy to take you through the platform, share a detailed software pricing estimate, and give you resources to create your recognition program budget.