How Much Should You Invest in an Employee Recognition Program?

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1 White Paper How Much Should You Invest in an Employee Recognition Program? At Next Level Performance, we are often asked how to estimate a budget for an employee recognition program. But determining cost in the abstract is a challenge because each program is tailored for the client s specific needs. We have created a few rules of thumb and guidelines that can help you quickly arrive at rough estimates for programs you are considering. 1 How Much Should You Invest in an Employee Recognition Program?

2 Estimating your Investment in an Engagement Program Companies can recognize employees with loyalty-inspiring engagement programs at an annual cost that is a fraction of other employer-provided benefits. Milestones/Years of Service Recognizing an employee s key milestones such as one, five, ten and up to 40 years of service is a strong reminder to employees that you recognize and value their enduring loyalty and service to the company. A study 1 by The Cicero Group of 2,400 employees across 10 countries looked at the impact on employee longevity (and loyalty) when a company has a milestone program and found a significant difference when one was in place. (see Figure 1). Figure 1: Effect of Milestone Program on Employee Longevity (in Years) 8.6 yrs 10.5 yrs 12.7 yrs No Program Milestone Program Rated (0-7) Milestone Program Rated (8-10) A recent study found that employees at companies with milestone programs anticipated staying 1.9 years longer (10.5 yrs vs 8.6 yrs) than at companies with no program. In those companies with a highly rated milestone program, employees estimated staying 4.1 years longer (12.7 vs 8.6). The same study also asked employees to rate on a scale of 0-10 how they felt the company cared about employees with or without a milestone program. All respondents indicating an 8-10 were considered to feel strongly that their company cares. Using this criteria, the study found that 39% of respondents in companies with no milestone program felt strongly that the company cared about them compared with 58% in companies with a milestone program. 2 How Much Should You Invest in an Employee Recognition Program?

3 Determining Cost To determine what a company might pay for a milestone program, we averaged out milestone payments from 15 of our clients (see Figure 2). Notice that milestone amounts typically begin small and increase with employee longevity. Figure 2: Milestone Payments Across 15 Clients Milestone Year Client/Industry #1 / Business Services $ 30 $ 75 $ 125 $ 250 $ 500 $1,000 $1,500 $2,000 $2,500 #2 / Building Products $ 30 $ 30 $ 70 $ 120 $ 130 $ 400 $ 500 #3 / Professional Services $ 20 $ 50 $ 100 $ 500 $1,000 $1,000 $1,000 #4 / Healthcare $ 100 $ 150 $ 200 $ 250 $ 300 $ 350 $ 400 $ 450 #5 / Healthcare $ 50 $ 75 $ 100 $ 125 $ 150 $ 200 $ 250 #6 / Manufacturing $ 37 $ 95 $ 150 $ 200 $ 250 $ 300 $ 350 $ 500 #7 / Consumer Products $ 100 $ 250 $ 500 $ 750 $1,000 $1,250 $1,500 $1,750 #8 / Financial Services $ 75 $ 120 $ 240 $ 360 $ 500 $ 500 $ 500 $ 500 #9 / Consumer Products $ 500 $1,000 $1,500 $2,000 $2,000 $2,000 $2,000 $2,000 #10 / Financial Services $ 250 $ 500 $1,000 $2,000 $2,500 $3,000 $3,000 $3,000 #11 / Software $ 250 $ 500 $ 750 $1,000 $1,500 $5,000 #12 / Financial Services $ 50 $ 100 $ 150 $ 200 $ 250 $ 300 #13 / Education $ 30 $ 75 $ 100 $ 150 $ 200 $ 250 $ 300 $ 350 #14 / Financial Services $ 50 $ 250 $ 375 $ 500 $ 625 $ 750 $ 875 $1,000 #15 / Professional Services $ 50 $ 125 $ 250 $ 500 $ 500 $ 500 $ 500 Avg. $33 $123 $240 $424 $642 $792 $1,150 $1,057 $1,230 Calculating the Cost Taking the midpoint of the first rule of thumb, let s assume that 12.5% of a company s total employee base will celebrate a milestone each year. Therefore, a 10,000-employee firm would annually recognize 1,250 employees (10,000 x 12.5% = 1,250). We then used the second rule of thumb that 80% of these 1,250 employees would celebrate 5-15 yr milestones, and 20% would celebrate yr milestones. Averaging the cost for each group based on the table above, we arrived at the following: 3 How Much Should You Invest in an Employee Recognition Program?

4 Figure 3: Cost of Milestone Program 10,000-employee company recognizing 1,250 employees annually. Milestone Years Avg. Milestone Cost # of Employees Yearly Cost 5-15 $ (80% of 1250) $222, $ (20% of 1250) $213,750 Total Cost $435,750 1st Rule of Thumb: 10-15% of a company s total employee base are recognized for a service milestone each year 2. 2nd Rule of Thumb: 80% of these recognized employees will celebrate a 5, 10, or 15-year milestone 3, the remaining 20% will celebrate year milestones. Therefore, the total cost to run a high-quality milestone program for a 10,000-employee company will likely run in the $435,000 range. From this, we determined an approximate guideline of $45/per employee. Here are the possible costs based on other company sizes: 5,000 employees = $225,000/yr 2,500 employees = $112,500/yr 1,000 employees = $45,000/yr In comparison with the costs of other employer-provided benefits such as healthcare plans, milestone programs are a fraction of the cost. For example, in March 2013, private employers spent $2.26 per-employee-hour worked on health insurance benefits, according to the Bureau of Labor Statistics. Private companies, therefore, spend more on healthcare benefits in one 40-hour week ($90) than they do in a year of providing milestone benefits. Manager Spot Awards, Peer Recognition, and Living the Values As mentioned earlier, three other employee recognition programs that are very popular with our clients include Manager Spot Awards, Peer Recognition, and Living the Values: Manager Spot Awards physical or electronic cards that managers can give to employees as rewards for a range of behaviors, such as for specific accomplishments or for extra effort to resolve a customer s issues. Cards often include points that the employee can redeem for merchandise, gift cards, event tickets, or travel rewards. 4 How Much Should You Invest in an Employee Recognition Program?

5 Peer Recognition similar to Manager Spot Awards, but empowers employees to recognize their peers. Some companies choose not to provide monetary awards for peer recognition. Living the Values many companies maintain a set of core values that inform how they want employees and leadership to behave. Or they may promote a set of values around performance, such as pursuing innovation or excellence in customer service. In either case, they reward employees who live these values. We selected a few of our clients of varing sizes, in different industries, to demonstrate a range of real-life programs. Below is a list of six Next Level clients and their program s annual and per-employee cost: Figure 4: Cost-per-Employee of Recognition Programs Client/Industry # of Employees Annual Cost Cost per Employee #1 / Banking Services 11,800 $231,817 $20 #2 / Financial Services 2,300 $65,000 $28 #3 / Building Products 2,000 $68,455 $34 #4 / Business Services 1,500 $17,310 $12 #5 / Payment Processing 839 $54,000 $64 #6 / Construction 485 $14,000 $29 Average Cost per Employee $31 Figure 4 shows that the average cost per employee among the six clients is $31, with the majority falling in the $20 to $34 range. It s interesting to note that client #5 with only 839 employees has a per-employee cost of $64 that is much higher than all of the larger-size companies. This is a reminder that other factors may come into play when determining cost, such as the number of programs you run and how much promotion goes along with it. Client #5 may be very proactive in using all three elements (Manager Spot Awards, Peer Recognition, and Living the Values), have strong management endorsement and visibility, and use creative and continuous communications to promote it internally. 5 How Much Should You Invest in an Employee Recognition Program?

6 Next Steps The guidelines presented in this paper should enable you to quickly scope out the investment in an employee engagement program. As you move forward, keep in mind that additional factors come into play when designing a program that can have an enormous impact on the program s acceptance and success. These can include the level of backing from senior leadership, the upfront design of the program using optimal award strategies to give you the best return on investment, and building in strong communication activities (launch kits, monthly eflyers, ect.) to keep employees engaged. To explore some of these variables and get a better sense of how a program could help your company increase employee engagement and motivation, please call one of our consultants at For more information, visit or The Effect of Years of Service Award Programs, 2012, Cicero Group. 2. Companies typically recognize 5-year milestones, which would suggest 20% in a steady-state employment situation. Employee churn, however, reduces this percentage. 3. Year one service milestones have been omitted because they are not universally used. 6 How Much Should You Invest in an Employee Recognition Program?