Budgeting for recognition can be tricky! What you spend, and more importantly, how you spend it, can affect:
- Participation in your program
- The impact that it has
- Its overall success
So, it’s important to make sure you take some care and time to plan out your budget and find a strategy that works for you.
In this section, we’ll share some strategies to help you determine what your budget should be, how to distribute it, and some tricks to set yourself up for success!
Budgeting overview
Often, when we talk to clients about their recognition programs, they’ll use the term ‘budget’ in about five different ways.
This is because there’s a lot of different aspects to planning a recognition program budget, such as:
- Rewards spend: The total amount your company spends on rewards
- Allowances: The spending limits allocated to your team members, e.g. $100 per month.
- Program costs: The amount you spend on your program outside of rewards. This would include subscription fees and setup costs, and you may even want to factor in admin time or any time and resources you need to promote the program internally.
Each of these things comes with its own unique set of challenges. Keep reading for a detailed breakdown of what you need to consider in each area.
Setting your total budget
Based on data from SHRM, the gold standard rule of thumb for an effective recognition budget is to set your total spend at about 1% of payroll.
Some organizations who really value the potential impact of recognition might go as high as 2,3 or even 10%, but 1% generally hits a ‘sweet spot’ of being affordable enough for most companies while still being enough to provide meaningful rewards and make a real impact on your culture.
Of course, for some companies this might seem like a lot, particularly if times are tight. In those cases, you might be able to work with a smaller budget. Explore different possibilities, such as using a non-monetary recognition program like Guusto’s Shoutouts to help save on reward costs. Some of the recognition budget can then be saved to reward top Shoutouts senders and recipients as an incentive to participate.
The important thing, though, is to make sure your budget is enough to make an impact. If you really need $1 million to run a successful program but can only get your execs to agree to $50,000, you might find it hard to make it work. Your team members won’t be able to recognize enough people often enough, the program won’t have much of an impact on your culture.
You might be better off putting that money into a smaller pilot program as a ‘proof of concept’ with one department or branch while you continue to try and get buy-in from your leaders. Then you can launch a larger program when you have the funds you need to make it a success.
How much should you budget for different types of programs?
Your total rewards spend might include a number of different types of recognition programs, such as:
- Real-time programs for day-to-day spot recognition
- Milestone programs for anniversaries and other special occasions
- Gifting for holidays and other company-wide appreciation initiatives
- Rewards that are tied to social and team-building events
Generally speaking, you should try and separate each of these programs in your budget. Each one will require different rewards amounts and different strategies.
For example, a $5-25 reward is perfect for real-time, day-to-day recognition, but if you’re rewarding an employee for 5 years of service, you might want to offer something more substantial.
That being said, you don’t need a large budget to make an impact! Sending a small token of appreciation is better than nothing. You can also help your dollar go further by launching only one type of program that contributes to your goals in a meaningful way.
Here’s a handy breakdown of the type of rewards to offer depending on what you’re recognizing people for:
Budget distribution tips
Giving the right budgets to your leaders and managers
A lot of rewards experts and recognition companies oversimplify budget distribution. They might recommend you set a budget based on a simple ‘headcount’ formula. For example, if a manager has 10 direct reports and you want each person to get an average of $25 a month in rewards, that manager needs a $250 monthly allocation.
Pretty easy, right?
But let’s look at how that plays out in a larger organizational structure.
Let’s say you have a large department where 1 VP oversees 5 managers, who each manage 10 people. Each of the department managers get a $250 allowance. So far, so good.
But the VP only has 5 direct reports, so they only get $125.
Table Illustration
In a good recognition program, you need your leaders to set an example, and that means recognizing people across every level of your organization.
This kind of recognition is gold dust in terms of improving your employees' sense of morale and engagement, and executive-level participation is a massive indicator of your program’s chances of success.
If your VP doesn’t have the budget for it, they won’t be recognizing enough people, your employees will think your leadership doesn't value the program (and doesn’t value them), and it will dilute its effectiveness. If your leaders aren’t recognizing people, it isn’t part of your culture.
You need to ensure that the allowances you’re giving people at different levels of your company are enough for them to recognize the people they need to. This means making sure that the people at the top have generous budgets that they can use to reward not just their direct reports, but also employees two levels under them.
A good rule of thumb is to budget a set amount for each person’s direct reports, and then a smaller set amount for each employee a level under that.
Returning to the last example, you might give the VP $25 for each of the managers under them, and then $10 for each person a level below that.
Now, they have $625 to spend on recognizing employees at all levels of the organization, and can really get involved and start leading by example.
Table illustration
Of course, depending on how large your organization is, you might have four, five, or even more levels in your hierarchy, but you don’t need to worry about giving people at the top budgets for every level. As a rule of thumb, setting your budgets to award their direct reports will give your leaders enough to recognize everyone they need to.
Setting budgets for peer recognition
If you’re running a budgeted peer-to-peer program, the allowances you give individual contributors will vary depending on how large your total rewards budget is, and how much you want to empower your people to recognize each other.
As a general rule of thumb, giving each employee an allowance of $25 per month is a healthy amount for a mid-size company, as it gives them enough flexibility to send one larger monetary reward per month or several smaller ones. Smaller companies may be able to give slightly higher budgets to make it a bigger part of their culture.
Of course, for companies with large numbers of employees, budgeting $25 a month could amount to significant outlay. We’ll often see larger companies with budgets that stretch to less than $5 for every employee.
In these cases, we actually recommend using non-monetary recognition alternatives. If you can only afford a small reward amount, employees won’t see a lot of impact from peer-to-peer recognition. They won’t be able to send rewards very often, and the rewards they do send will be so small that the gesture will lose a lot of its value.
Instead, spend that money on a non-monetary peer-to-peer solution like Guusto’s Shoutouts. For a small subscription fee, employees will be able to send unlimited non-monetary recognition any time they want, which will make recognition more visible and frequent. If you have any budget left over, you can use it to supplement your non-monetary program with additional rewards. For example, you could use Guusto’s Draw feature to randomly select Shoutouts for rewards at your team meetings, or offer rewards to top 3 people in your Leaderboards every month.
Pro tip: Some companies make the mistake of excluding managers and executives from peer-to-peer recognition programs, meaning individual contributors can only recognize other individual contributors. In a lot of cases, though, being able to recognize those above them is important to employees, while managers will appreciate the hard work and efforts they put into helping their team grow and develop being acknowledged.
Setting your allowance frequency
With Guusto, each user is given a set allocation of rewards they can send over a given period called “spending limits”. At the end of that period, the allocation resets, and any amount they haven’t used is gone.
Admins may set monthly or quarterly spending limits to accommodate the pace of their organization’s needs. This is an effective method to drive people to spend their recognition allowances, by reminding employees and managers to ‘use it or lose it’.
Most admins prefer to set up spending limits on a monthly basis. We encourage monthly limits for the majority of programs because they are easy to manage, encourage consistent recognition, and promote timely recognition habits across the organization.
Once you have ran your program for at least 6 months, you can reevaluate if the monthly cadence is appropriate.
Some admins have found that quarterly budget limits are a more suitable option. However, when quarterly limits are set, we typically see low participation in the first two months followed by a spike in the 3rd month before the budget resets. So it's not as effective as monthly limits for consistent, year-round participation.
Pro Tip: Set allowances based on projected participation
You might think that the total allowances you give employees over a given period of time should be equal to your total rewards spend budget for that period, but this isn’t always the case.
If you want to maximize the impact you see from your program, it can sometimes be worth setting your allowances higher than your budget.
For example, let’s say the total amount you want to spend on recognition in a quarter is $100,000. You’d assume, then, that you should give your employees a quarterly allowance that totals $100,000, right?
But here’s the thing: you’re never realistically going to get 100% participation in your program. So, if you expect participation to be about 40%, which is the average participation level we see in recognition programs at mid-sized companies, that means you’re only going to spend about $40,000 on recognition.
And if you only spend $40,000 on recognition, you will only see $40,000 worth of impact.
With that in mind, it can sometimes be worth setting your allowances based on your projected participation instead. If you expect 40% participation but have a $100,000 total budget, you could set your allowances at around $200,000.
That way, 40% participation will result in around $80,000 spent on recognition, bringing you closer to what you wanted to spend, with a bit of extra wiggle room in case you’ve underestimated participation.
Doing this will help make sure recognition is widespread throughout your team, and that more people in your organization get meaningful rewards.
How to transfer budgets in Guusto
There are four ways to set budgets:
- Manually transfer funds from the Team Balance to each Team Member (learn more).
- We recommend just using this for one-off special situations! Options 2-4 are more sustainable for ongoing budget transfers.
- Automatically transfer funds from the Team Balance to the Team Member Balance every month (learn more). (our most popular option)
- Give users access to spend Team Funds and set individual monthly/quarterly limits (learn more).
- This option is very similar to option 2, but all team members will be able to view the entire Team Fund balance.
- Give access to spend Team Funds and set spending limits with the Cost Center (learn more).
- Cost Centers are group budgets for more granular reporting. This is a Premium Tier feature.
Pro tips
- Automate a reminder message to use budgets before they expire. Emailed reminders help increase program participation.
- Use option 2 if you would not like each team member to see the full account balance in your team.