When you budget your incentives, you’ll see the difference between the programs that actually improve performance and those that just use up your resources without giving much back to you. You’ll probably see some higher engagement and better employee retention when you plan where all your recognition money goes. In most cases, sound budgeting can turn your standard products into the tools that motivate your team and improve your business.
Creating a helpful incentive program starts with figuring out how to distribute all your funds. You might wonder if you should use the common strategy of setting aside about 1-2% of your payroll or if you should allocate an amount per employee. And how much should you put toward the performance bonuses compared to the on-the-spot recognition? Generally, finding the answers means looking at what works in the market while also thinking about what your company needs.
You should think of your incentive plan like a blueprint for a house. Let’s get started with the common numbers that businesses usually use to build their programs and make them work well.
Typical Incentive Budgets
You’ll find that most businesses generally put aside around 1% to 2% of their payroll for employee incentives each year. If your company pays $1 million in wages, you might want to set aside $10,000 to $20,000 for rewards and recognition. Businesses typically land right in the middle at about 1%, which tends to work well for many needs. Actually, your budget will depend on your company size and your financial situation.
When you look at it per person, many businesses spend between $200 and $350 on each employee yearly – this might not seem like much when it’s spread across twelve months. Just remember the money can pay for gift cards, team lunches, or small bonuses throughout the year. Some businesses like to save up for bigger quarterly or annual rewards instead.
Also, for your peer-to-peer recognition programs, you should set aside a separate $5 to $20 per employee each month. These programs let your team members nominate each other for some small rewards or public appreciation. They work because people feel appreciated when their teammates see their hard work! Even this small monthly investment can make a difference in your workplace.
The Society for Human Resource Management usually suggests spending at least 1% of your payroll on recognition, and their research has proven this, too. The businesses following this guideline are typically three times more likely to have successful recognition programs. You’ll often see this success through better employee retention and higher productivity across your teams.
Before picking a budget amount, you should consider what you want to achieve with your incentive program. Different goals may need different funding levels. Keep in mind that a program focused on increasing sales might need more money than one focused on teamwork. Your company culture and your previous experience with incentives will also help you choose what makes sense.
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The spending changes quite a bit between different industries. Tech businesses, in general, spend more on benefits than manufacturing businesses do. Consider how the age of your workforce can also affect how they rate different rewards. You should try matching your incentive types to what your team members will like the most.
How To Plan Incentive Budgets?
When you start planning your budget for employee incentives, you should set some clear goals. Take a bit to remember the behaviors that you want to see more of in your team. You’ll need to have an accurate picture of what success looks like before you spend any money – it makes it easier for you to tell if your program is actually working once it’s up and running.
In most cases, you’ll want to choose who gets a chance to earn these rewards for themselves. Are you including everyone, or are you just focusing on departments? Pick some metrics that make sense for measuring how your people are doing. Try to make them fair for everyone on your team. Your team should be able to know what they need to do to get their incentives.
As a general rule, you should put about 70-75% of your money toward the rewards themselves. The other 25-30% usually goes to running the program and handling the other costs. Businesses generally find that setting aside about 2-5% of their total sales revenue works for the incentives. Some like about 6-10% of just the extra sales they make during the program instead.
Remember to plan for different possible results in your budget. What happens if your team members hit their targets? What about if only half of them do? Nobody wants to tell their top performers that they can’t get their promised rewards because the money has run out.
Keep in mind to make some room in your budget for some helpful technology. The right software tends to make tracking your incentive program easier for you. Reliable tools can give you some idea about who’s earning what while it’s happening, not weeks later. They also help you keep an eye on how much of your budget you’ve already used, which prevents any nasty surprises.
Adding a little wiggle room in your budget for unexpected occurrences helps. Markets can change, goals might need adjusting, and your program may need to be modified along the way. Consider keeping a small reserve fund – about 10% of your total budget – to help you adapt when situations change unexpectedly.
From experience, you should keep an eye on your budget with some standard check-ins. Look at the numbers at least once a month to catch any challenges early on. You might see that some teams are earning more incentives than you expected or find that rewards aren’t getting your people excited.
How To Allocate Incentive Funds?
Now that you have your total incentive budget ready, you need to figure out how to split it among people. Businesses usually set aside a percentage of their total payroll – this generally grows naturally as your company gets bigger over time. You’ll find that some businesses are around 2-3% of payroll for bonuses, though it’ll look quite different depending on your industry.
In most cases, you can also give each employee the same amount if you want. Just to give you an example, you might budget about $500 per team member no matter what their salary is – this can give you a sense of equality with all your staff and tends to work well in smaller businesses where everyone feeling like part of the team matters quite a bit.
Businesses use tiered budgets based on roles or how long someone has worked with you. Your senior staff might get some bigger incentives than your newer team members – this shows that you value the different levels of responsibility and helps you retain the experienced employees who would be tough to replace. See if this actually fits with your team culture.
As you can imagine, your industry will shape which strategy works best for you. Retail businesses normally tie their incentives to individual sales targets. Manufacturing businesses often have team production goals instead. Tech businesses tend to feature some company-wide metrics to get everyone working together. What makes the most sense for the type of work that your team
Remember to set aside some extra money in reserve for surprises. Reserve about 10% of your total budget for those times when someone does something that you didn’t see coming – this can give you room to reward good work without throwing off your whole plan. You’ll be happy to have this flexibility when unexpected excellence happens in your organization.
Make sure that how you split your budget connects to what your company wants to achieve. If you value innovation, reward the people who come up with new ideas. When customer happiness drives your business, link your bonuses to service feedback. Your team naturally notices which behaviors earn rewards, so your incentive plan tells them what you value as a company.
Check in on your allocation strategy as your business grows and changes over time. Last year’s strategy might not work well for you now. When your company strategy changes, you’ll probably need to adjust how you hand out incentives, too. Try looking over your program once a year at minimum. Can you find any ways to make it better match where your company is headed in the future?
Employee Incentive Types
You’ll find that businesses use various types of rewards to keep their workers happy. Cash still usually tops the list for most employees’ favorite incentives. Yearly bonuses that are linked to job performance make people feel appreciated for their hard work. Sales teams thrive with commission structures when they meet or exceed their goals.
Your company doesn’t always need to hand out cash to show its appreciation. Gift cards give your team members the freedom to choose something meaningful to them. In some cases, company merchandise lets employees display their workplace pride in their lives.
Recognition programs don’t break your budget, but they mean the world to your team. You can start an “employee of the month” program to lift spirits across your whole company. Give your managers some awards to recognize good work right when it happens. Take a bit of time during your team meetings to showcase good work – people love feeling appreciated for what they bring to the table.
Your team wants to grow, and supporting their development generally creates strong loyalty. You can send them to industry conferences to show that you care about their professional future. As a best practice, help pay for classes or degrees that build new skills they can use at work. Set up some mentorship connections that cost only time but can change someone’s entire career path.
Wellness programs have grown more popular in recent years. Offering help with gym memberships will show your team that you care about their physical health. Give them access to mental health resources to support their wellbeing. Even stocking healthy snacks in the break room can make work life more pleasant.
Work-life balance benefits, in many cases, cost less than cash bonuses, but they can mean more. Let your team work flexible hours, so they’re able to manage their personal responsibilities without stress. Remove the commute headache by allowing remote work when it’s possible. Try giving just one work-from-home day per week and watch your team’s happiness improve.
Team rewards naturally help build stronger bonds with your staff. In my experience, you can take your department out for an activity to help people connect outside the office walls. Celebrate your team wins together to point out the power of collaboration.
Incentive Trends Today
Employee rewards have been changing much faster these days. Businesses aren’t waiting for that once-a-year bonus anymore. You’ll see that more businesses are giving smaller rewards throughout the year, which keeps people feeling appreciated month after month – the motivation stays steady instead of having just that one big moment that gets forgotten after a few weeks.
As an upcoming trend, businesses like to create reward programs that match what you actually care about in life. Maybe a coffee gift card makes your morning better, while your coworker would prefer a Friday afternoon off or even a chance to learn something new. Everyone treasures different parts of life, and employers are quickly catching on to this.
The tech side of rewards has now become easier for everyone. Your manager can find your commendable work and send you a thank-you reward with just a few clicks. There’s no more waiting for weeks for recognition. On top of that, these online systems generally keep track of who’s receiving what rewards, which makes everything more balanced for the whole team.
You’ll see more wellness options showing up in reward programs. Businesses recognize that when you feel positive, you tend to be more helpful. Businesses often give you free gym access, some support for mental health, or even apps to help you relax as part of their thank-you package.
Let’s face it: cash rewards still work well for most people. But they’re just one option for you now. Think about some concert tickets or a fun cooking class instead – these, in many cases, make you much happier than money alone. Wouldn’t you remember that show for longer than you’d remember a slightly bigger paycheck in your bank?
In recent years, coworker recognition has taken off in businesses. When your teammates can nominate you for doing good work, it normally builds stronger connections – this kind of praise probably feels more real to you because it comes from people who work directly with you and can see your contributions.
Beyond traditional incentives, money management help is increasingly becoming a popular reward, too. Your company might give you some help with your student loans, retirement planning or help with creating emergency savings.
Level Up Your Incentives and Rewards
Creating a quality rewards program does take some time to plan. But you’ll see some real benefits for your team and company that’ll make the effort worthwhile! When you put aside approximately 1-2% of your payroll for recognition, you’re investing in your people in a real way. Also, check in to see how your program is working and be ready to adjust based on what you learn from it. Try to find the right balance between cash and non-cash rewards that make your employees feel appreciated while also supporting your business goals.
There are generally different incentives that are more helpful for different team cultures. Some of your employees might like extra time off. But others tend to feel more motivated by public recognition or opportunities to grow in their careers! The programs that work best usually see what drives each person and create a sense of fairness throughout your company. Just remember that when you introduce helpful facts like taxes, which can affect your budget and how your team members receive their rewards, you see results.
Your incentive program normally works way better when it matches your company values and helps your employees feel appreciated. You’ll probably see that your team seems happier at work, stays with you longer, and gets more done each day. Actually take some steps this quarter to look at your latest strategy and improve it for everyone. Why not ask your team directly what types of recognition would mean the most to them?
The good news is we help you make your incentive programs even better for your company. You should know that here at Level 6, we know how to improve your business with different types of incentive programs that work. We help your sales team perform better and make your employees feel happier at work. We have branded debit cards, employee rewards programs, and sales incentives that we customize to fit your business needs. Rest assured, we build programs that get real results for you and your team.
Get in touch with us for a free demo and see how we help businesses like yours improve their sales and get more from their investment.
Claudine is the Chief Relationship Officer at Level 6. She holds a master’s degree in industrial/organizational psychology. Her experience includes working as a certified conflict mediator for the United States Postal Service, a human performance analyst for Accenture, an Academic Dean, and a College Director. She is currently an adjunct Professor of Psychology at Southern New Hampshire University. With over 20 years of experience, she joined Level 6 to guide clients seeking effective ways to change behavior and, ultimately, their bottom line.
