How to Build Budgets for Incentive and Recognition Programs

Each strategy should have its own budget

Planning effective incentive and recognition programs is a unique discipline: part art (creating enticements and over-the-top celebrations), part business (writing contracts, setting budgets), it’s also part risk management- meaning you must keep your ear to the ground and be alert to all manner of changes that might impact your program. Incentive awards and recognition programs are separate strategies with different goals. They require separate budgets. Here is a primer for both.

Incentive Programs

The profits or cost savings generated by a well-structured incentive program will cover its costs, but you probably wont know the exact results until the program has concluded. So what does this mean for your budget, which needs to be firmly in place before the incentive campaign can begin? The goal is to strike a balance between an award that is large enough to motivating and one that fits your budget. Even though a successful program will pay for itself, the organization will still need to spend money up front for administrative costs, promotion and awards.

There are a variety of ways to develop a budget for an incentive but program design is the key way to manage costs. The two most common types of program design close-ended and open have their pros and cons.

A close-ended budget caps the total number of qualifiers, such as the top 20. This type of program allows you to establish a firm budget at the start of the program. However, such programs also tend to reward the people who probably would have perform well even without the program.

An open-ended design doesn’t put any limit on the number of winners. Whoever reaches the goal, earns the award. The downside is these programs tend to generate higher administrative costs, and the total cost is unknown until the campaign has ended. However, if designed correctly, extra sales generated will more than cover such costs.

Regardless of the method, the majority of your budget should be spent on awards, about 70 percent to 75 percent. The rewards for an incentive program serve as a visible reminder to the recipient and co-workers of their value to the company. This is one of the most important reasons that care and consideration must be put into the selection of the merchandise.

Promotion is next, claiming about 15 percent. Administration usually requires about 5 percent. The remainder of your budget goes to training, if necessary. Incentives won’t improve productivity if employees don’t have the skills or knowledge to change their behavior.

Recognition Programs

The Incentive Research Foundation (IRF) has a free program budget calculator that can give planners a leg up on budgeting recognition programs.

Recognition programs ​have wide reach, so they can motivate broad-based employee behaviors.​ They answer the universal human need for appreciation. Everyone can qualify and, ideally, the great majority of employees will receive at least some recognition. Recognition programs encourage behaviors that incentive programs might miss, such as exemplary customer service, collaboration, and learning. These behaviors boost engagement, reduce employee turnover, improve productivity, build corporate citizenship, and create a robust culture.

Click on the calculator link below, then enter your number of employees and target annual award. The calculator will then provide recommended estimates for such key areas as professional design, award budget, technology, communications, administration events, and training. It will also calculate the suggested total spend per employee and average award per employee.
https://theirf.org/calculator/

Any thoughts, opinions, or news? Please share them with me at vince@meetingsevents.com.

Photo by Unsplash+ In collaboration with Getty Images

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