How much should I pay for my reward and recognition programme?

By Jamie King, director of Global Reward 

Reward and recognition (R&R) is big business. According to industry research, organisations in the US alone spend $90bn a year on non-cash incentives. It’s easy to look at those figures and be put off by the cost but in truth, R&R programmes are one of the most cost-effective aspects of an employee engagement strategy and can make a huge difference to the culture and productivity of your organisation.

There are two possible costs to a reward and recognition programme. (1) The amount you set aside as rewards to employees, and (2) the cost of managing the scheme.

  • Recognition need not be about financial awards at all (see more about this below). But where financial awards do play a part, the industry average spend on reward and recognition programmes is between 1% and 2% of total remuneration, a figure that has been backed up by various surveys including this one by World at Work. An alternative to using industry average as your guide would be to work backwards from your recognition objectives. Based on the current state of engagement and recognition across the organisation, you may want your programme to impact 80% of your total employee base. Of these, you may conclude that only 25% require financial awards and given the average salary of £X, the average annual award for each employee (to make it meaningful) should be £Y.
  • As far as your budget for managing the reward and recognition programme goes, there are a number of options here. Will you be managing it in-house? Will award processes be paper-based and managed manually or via a purpose-built online portal? These options will all have associated IT, HR and management resource costs. There are different ways to implement reward and recognition programmes but in our experience the most effective method is via a portal. This makes it quick and easy to recognise great work, simplify the processing required, ensure full auditing and accurate reporting of all recognition activity and generate higher levels of engagement than a paper-based or manual scheme. If you are outsourcing the development and management of your portal, then you will need to consider supplier costs. These will of course vary between providers, deliverables and service levels.

Getting your reward and recognition budgeting right is crucial, but it also pays to think about more than just balance sheets. So if you’re going through this process now, here are three other key points to consider:

  • Consider the bigger picture

It’s right to consider the cost of a reward and recognition programme but you should also consider the potential benefits and savings, particularly when it comes to operational performance. At a macro level, employee recognition initiatives that increase engagement can make a huge difference to operational performance. The retail sector is a good example of this: when you have supermarkets with a multi-billion pound cost base, a 3% uplift on productivity is going to have a much greater impact than driving hundreds of millions of pounds worth of costs savings. Moreover, a well-designed portal should facilitate an increase in capital and operational efficiency. In addition to automating the approval process for granting recognition awards, online schemes avoid the need for any paper filing, thus facilitating a reduction in operational carbon.

  • Feed into your learning and development programme

Awarding your team learning and development opportunities is one of the most effective ways of supporting their long-term engagement in your business and should form a part of any reward and recognition strategy. For many workers – particularly millennials – having the opportunity for learning and development is more important than financial incentives when it comes to job satisfaction. And the best thing is you’re also feeding into the skills, knowledge and experience of your team! You can even link L&D awards to your existing performance management, co-ordinating with employee review procedures to emphasise the link between performance, recognition and career development.

  • Some of the best rewards won’t cost you a penny

There are many employee recognition initiatives that won’t cost you a penny. It sounds simple but saying thank you (and encouraging managers and colleagues to do the same) can be the most effective way to recognise hard work. Whether in a handwritten note, or at a team meeting, a study by Glassdoor found that 80% of employees would be willing to work harder for an appreciative boss and 70% said they’d feel better about themselves and their efforts if their boss thanked them more regularly. Likewise, giving an employee additional responsibility, the opportunity to pursue a personal interest within their role, or a work-related prize, lets them know that they have earned your trust and respect and this can be a powerful thing. A 2009 survey by McKinsey found that praise from management, leadership attention and having the opportunity to lead projects are more effective motivators than cash, pay rises or stock.

WATCH our webinar on ‘how to size up your reward and recognition budget