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A Recognition Program Starts with a Budget

February 22, 2010 by  

In these times, finances are on everyone’s mind. Matter of fact, they are the topic of many a speaker advertising seminars and teaching to help you get out of debt. All these experts will agree on one thing…to stay out of debt, you need a plan and a budget. A budget helps discipline ourselves to stay in the bounds to accomplish our plan…and a properly funded budget insures we will carry out our well thought out plan…remember a lot of rationale goes into a plan…why let a good idea be torpedoed because of a lack of funding!

You feel your company needs an employee recognition program as a very important component towards workforce development, retention, and loyalty. Perhaps you don’t currently have a program or you feel that you have a poorly funded program (which if anything, shouts how hypocritical and cheap your company is). How do you make the case?

This may mean that an advocate for recognition and incentives in your organization (Human Resources or Sales & Marketing) may need to apply some simple accounting and business principles to make a case…in most cases, selling the plan to the financial caretakers of your organization.

When it comes to recognition, too often the first question is, “how much do we want to spend?” This is an immediate question that looks for immediate answer…”how much do we have available?” This is not planning…this is reactionary. You need a plan that will sustain itself through the good and the bad business years. A recognition service award program budget should not be dependent upon the ebb and flow of business. It must be a funded budgetary line item in your business plan. Once a company makes a commitment to service recognition, you have made a promise to your employees. Your integrity as an organization depends upon follow through…it is a business liability. A recognition budget should be a funded liability…much like accruals for payroll and income taxes…accruals should be charged against operations to fund a self-sustaining recognition budget.

Let me present an example.

What percent to sales cost does your management feel comfortable with? What can you sell them on? Perhaps 1/100 of a percent to sales might be palatable, that’s .0001 x your sales! That shouldn’t get the shareholders too excited! Let’s take a look at some numbers.

Say the annual sales of your organization are $50 million and you have 400 employees. A rate of 1/100 of a percent to sales would yield $5,000 per year towards recognition (can you afford more??).

Your company has 400 employees. An industry average shows that if years of service recognition are given at five year intervals of employment, approximately 10% of your workforce will be recognized per fiscal year. Therefore, in this case study, 40 employees will be recognized per fiscal year. Subsequently, a $5000 yearly budget for years of service means about $125 average spent per employee recognized in a fiscal year.

What about the accrual? You should be accruing as an expense against monthly sales approximately $417/month, or stated another way, $1.04/month per employee ($417 / 400 employees)!

You see, when you break information down into numbers you are speaking the language of the business managers of your organization. I don’t know about you, but I think the numbers presented above are embarrassing if you are trying to make the statement to your employee “we value you”! If you just increase the accrual per employee up from $1.04 to $2.00/month, you increase your pool of funds for recognition to $9600 (only 2/100’s of a percent to sales!) and your average per employee spent on recognition in the year goes to $240! How much more of a statement can you now make to the employee you want to recognize for their contribution for the past five years! Still seems small doesn’t it!

You see, sometimes it’s not what you say, but how you say it. Speak management’s language and you very well will be able to get a recognition service award program or more adequately fund your current program to achieve higher value impact for the morale of your organization. You’ll be a champion for your co-workers!

Obviously, this is a simplified presentation. You may not enjoy crunching numbers to justify a proposal, but I guarantee if you make the effort, your management will listen to your proposal with much more interest…and that is the first hurdle to pass. Plug in actual numbers for your organization and you can present a pretty good recognition proposal for your management.


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