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5 min

Budgeting for Employee Recognition

Budgeting for Employee Recognition

How do you build a comprehensive budget for a new recognition program? How do you make sure you're comparing different solutions "apples to apples"? We asked the experts those questions and more to equip you with everything you need to build your budget.

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This is part 1 of our 3-part “Making the Case” series, dedicated to helping you make a business case for recognition in your organization. Keep an eye out for parts 2 and 3 coming soon.

Today's organizations are overwhelmingly finding that to compete in today's competitive labor market and retain great employees, they must strengthen their employee experience holistically through unique benefits, flexibility, and proactive employee engagement initiatives. One proven way to enhance employee engagement is through regular, meaningful recognition. The benefits of employee recognition programs are undeniable and plentiful.  

When proposing employee recognition solutions, HR leaders are often tasked with building a budget for an enhanced program to get executive buy-in.  

So how do you build a comprehensive budget for a new program from scratch?  

How do you make sure you're comparing different solutions "apples to apples" to get a clear picture of which solution is best for your needs?  

Recently, Kudos®' CFO, Karim Punja, and Kudos®' Director of Sales, Cheryl Smith, hosted a workshop to help walk HR professionals answer the questions above and more. We encourage you to watch the webinar here, or read on to learn all the insider tips and tricks shared.

Recognition’s Impact

Before digging into the actual budgeting exercise, it's important to level-set on why you're considering bringing in an employee recognition platform so you can contextualize your budget with a legitimate need and urgency.

“Doing what’s best for your employees does not contradict doing what’s best for your company,” Cheryl Smith, Director of Sales at Kudos®, explains. The Gallup Q12® Meta-Analysis is a fantastic resource to reference when building your case for the importance and impact of recognition. Here are some highlights:

8 benefits of recognition are displayed. They are discussed below.
  1. Recognized employees are more engaged employees. When employees feel acknowledged and appreciated by their place of work, they are more likely to develop the mental and emotional connections needed to be engaged. Learn more.

  2. Enhanced engagement leads to lower absenteeism and reduced turnover. Research has repeatedly shown that employees who feel valued are less likely to leave their employer. Learn more.

  3. Employee recognition drives a stronger workplace culture. Besides incentivizing achievement, employee recognition gives employers the ability to reinforce behaviors they find valuable. Learn more.
  4. Employee recognition is important for inclusion. Creating a workplace environment where employees feel valued, welcome, and comfortable will foster a sense of belonging, psychological safety, equity, and general well-being. Learn more.
  5. Employee recognition drives employee performance and productivity and business performance overall. Humans have an innate need to be seen by and receive praise from others, and employee recognition does just that. Organizations with employee recognition programs are 12x more likely to have strong business outcomes. Learn more.

Building Your Budget

Benchmarks

With all of the value that employee recognition and engagement provides in mind, it’s now time to build your budget.

“The key number from the CFO’s perspective is the total cost of ownership,” says Karim Punja, CFO at Kudos®. The following is designed to help you understand what key inputs and cost drivers make up that total cost so you can build an accurate and comprehensive budget.

3 budgeting benchmarks discussed below are displayed.

Starting with benchmarks of how much today’s organizations invest in recognition and rewards provides your decision-makers with something to compare your proposal to. The benchmarks provided in this overview are for comprehensive recognition programs, like Kudos®.  

Beyond helping with your proposal, these benchmarks can help you assess how your current recognition budget compares to others and give you a place to start if this is a net new program and initiative. Keep in mind that many organizations migrate legacy “years-of-service” awards and annual recognition programs to their modern recognition system, so those costs are included in these benchmarks.

Current Benchmarks (per employee recognition budget benchmarks):

  • Low: Under 1% of base salary
  • Average: 1-3% of base salary
  • Above Average: 4-10% of base salary

The Six Key Budget Inputs  

✓ Employee count: Because you’re building your budget on a per-employee basis, this number is critical to an accurate proposal. Consider the exact size of your organization, whether it spans multiple regions, and whether there are various kinds of employees to consider (contract, field, temporary, interns). Larger organizations with multiple departments and regions might opt for a sequential implementation where, for example, a specific geography or division would start, then other groups would join in over a year or two. The timing of a staggered launch would have to be considered to make sure the budget is attributed at the right time.

✓ Rewards or no rewards? Some vendors will give you the option of running your recognition program platform with or without monetary rewards and points. Some costs to consider are whether points need to be purchased in advance, if rewards are marked up, and the fulfillment costs of physical rewards. Hint: With Kudos®, rewards are optional. Kudos® also never marks up points and rewards. You are in complete control of your budget!

✓ Expected recognition and rewards budget per employee/year: Determine what you intend to spend on your program using the benchmarks above. You can also use the amount you’re spending on your current recognition/years of service program. For example, if you’ve recently moved to a remote work format, you could reallocate the budget from the expensive parties and receptions you’re no longer hosting.  

✓ Budget timeframe: Budgets are usually based on one fiscal year. Your CFO will likely want to know, beyond the fiscal year budget, what the total cost of ownership is for the program and the total cost of the agreement. For example, if you’ve committed to three years, fees for all three years would be included in your total cost of ownership. The total cost of ownership also consists of any additional resources required to run the program, such as staff time.

✓ Hidden fees: It’s essential to work directly with vendors to understand all fees and costs regarding rewards, markups, or fulfillment costs and any other resources you require. Your budget proposal should include a plan for who will manage this program (including one or two alternates.)

✓ Implementation & support: Ensure you understand the onboarding and launch process, including any information technology (IT) support needed. Your CFO needs to consider the opportunity cost of using IT resources for this project rather than another, so providing that information upfront is extremely helpful.  

Your Budgeting Workbook

While all of this may seem overwhelming, the right vendor will be able to walk you through this process, making it painless and straightforward. To help, Kudos® has a prebuilt Employee Recognition & Rewards Budget Planner that you can download here.  

The webinar recording previously mentioned walks through how to use the budget planner workbook.  

The workbook contains three helpful sheets:

  1. Business Details (the initial set of inputs for the budgeting process), if rewards are marked up, and the fulfillment costs of physical rewards. Hint: With Kudos®, rewards are optional.
  2. Advanced Business Details
  3. Budget Worksheet (summary) which provides a nice output schedule of budget costs over a three-year period

Here is a preview:

Preview of budgeting spreadsheet
second preview of budgeting spreadsheet

Bringing It All Together

Budgeting is a tedious but extremely valuable business process that allows you to make significant strides in your work. Launching a formal recognition program is often a career-defining move for many HR professionals – it requires work and dedication, but the results are undeniable.

Finally, remember that this is the starting point. Depending on your organization's structure, policies, and needs, there can be nuances. This overview captures the baseline budgeting information needed for an employee engagement and recognition system.  

Once again, we strongly encourage you to watch Kudos®' CFO, Karim Punja, and Kudos®' Director of Sales, Cheryl Smith's budgeting workshop here. If you need any assistance building your recognition program budget or learning more about the value of recognition and employee engagement systems, please reach out to the Kudos® team.

ROI

5 min

Putting Clients First: SOC 2 Compliance in HR Tech

Putting Clients First: SOC 2 Compliance in HR Tech

SOC 2 compliant organizations have gone through rigorous external audits to ensure they have the infrastructure, tools, and processes to keep your data safe. To explain the impact and importance of SOC 2 compliance, Henry Maphosa, Director of Technology at Kudos®, answered some questions about this important certification.

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When considering and comparing vendors in the HR/Worktech space, one critical factor should be the security and privacy of employee data within the system.

So, what should you look for to ensure your data is safe and secure?

One way is to seek out a vendor with SOC 2 accreditation or what's more commonly referred to as a "SOC 2 compliant company". Kudos® understands the importance of your data and information and is proud to have this accreditation.

To explain the impact and importance of SOC 2 compliance, Henry Maphosa, Director of Technology at Kudos®, answered some common questions about this important certification.

What is SOC 2 Type 2 Compliance?


SOC 2 is a voluntary compliance standard for service organizations, developed by the American Institute of CPAs (AICPA), which specifies how organizations should manage customer data. The standard is based on the following Trust Services Criteria: security, availability, processing integrity, confidentiality, privacy.

Being SOC 2 compliant assures customers and clients that a vendor or partner has the infrastructure, tools, and processes to protect their information from unauthorized access both from within and outside the firm.

Why is SOC 2 compliance important to Kudos® Clients?


“We recognize the importance of this report and its usefulness to clients,” says Henry. “It’s recognized by procurement, security, legal, and privacy teams. Essentially, the report contains anything you’d like to, and need to, know about us a vendor.”

In his role as a Director of Technology, Henry often evaluates software systems and tools himself, so he understands the importance and practicality of this certification firsthand. “If a company does not issue a SOC 2 report, it could raise questions regarding the controls they have in place or their commitment to security and compliance as an organization,” explains Henry. “It also means more time spent investigating their security practices.”

For Kudos® clients, SOC 2 compliance indicates that they’re partnering with a provider who meets rigorous standards. Henry adds, “because this report is an independent validation, you get more assurance that we do what we say we do from a security, privacy, and compliance perspective.”

Why is SOC 2 compliance especially crucial in the HR Tech Space?


Software and vendors in the HR/Worktech space often store personally identifiable information (PII) like names, phone numbers, or even SSN numbers. Some platforms also hold confidential business information like HR budgets or company goals which are especially vulnerable and critical to protect.

For Kudos®, SOC 2 compliance assures HR leaders that any information input into the Kudos® platform, including individual personal profile information and the contents of recognition messages, is all secure and private.

Henry ends by stating that given the sensitivity of personal data involved in all aspects of Human Resources Management, “SOC 2 compliance is critical for Kudos® to demonstrate our commitment to supporting and protecting our clients.”

Data Security & Kudos®


Kudos® is committed to providing clients with the highest level of security assurance and has officially completed its SOC 2 Type 1 Compliance and Certification. Kudos® completed the independent platform and systems compliance audit with zero exceptions, meaning all controls were designed effectively.

If you’re currently evaluating employee recognition systems and would like to learn more about the importance of security and privacy, please do not hesitate to reach out.

ROI

5 min

How to Get Approval for an Employee Engagement and Recognition Platform: Practical Advice from a CFO

How to Get Approval for an Employee Engagement and Recognition Platform: Practical Advice from a CFO

According to Deloitte’s Q1 2021 CFO Signals Report, 66% of CFOs think this is a good time to take on greater risks, up from 49% in Q4 2020. Activities related to talent retention were cited as an example of risks CFOs are willing to take right now. Evidently, there’s no better time to make your case for the benefits of an employee engagement and recognition platform – and we’re here to help.

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You’ve put in weeks of research, reading, learning, getting to know vendors, and experiencing demos - you’re ready to present a proposal to your executive team. This can feel like a big hurdle to overcome. We sat down with Karim Punja, CFO at Kudos, to demystify what executives need to help make those conversations less nerve-racking. While the tips presented here center around making a case for an employee engagement and recognition platform like Kudos, they can also translate to any initiative or investment you’d like to move ahead.

Why now is the right time to implement an employee engagement platform:

According to Deloitte’s Q1 2021 CFO Signals Report, 66% of CFOs think this is a good time to take on greater risks, up from 49% in Q4 2020. Activities related to talent retention were cited as an example of risks CFOs are willing to take right now. Evidently, there’s no better time to make your case for the benefits of an employee engagement and recognition platform – and we’re here to help.

When asked what he and his team want to know when evaluating a proposal for a new enterprise investment, Karim explained that he is always trying to answer two critical questions:

1. What is this going to cost?

2. Why are you proposing this? And why now?

Karim walked us through what it takes to answer those questions in a way that will make your proposal hard to refuse. As a CFA with over 15 years of experience in corporate financial management and planning, this guy knows his stuff - we’re confident these trade secrets will help you move the needle forward on your project.

Let’s dive in so you can start building your plan:


Answering Question 1: What is this going to cost?

Before approaching your C-Suite and especially your CFO to propose investing in an employee engagement and recognition platform, make sure you’ve considered the total cost.

Transparent Pricing

First, Karim emphasized the importance of presenting transparent pricing, including an accurate quote or contract that outlines all costs, including any implementation fees, additional support costs, and the total length of commitment. Sometimes options can be helpful too, like a discount on a 3-year commitment, for example. Finance experts deal with specific, measurable things; your finance team will not be able to sign off on approximate numbers. When it comes to employee recognition and engagement platforms specifically, your CFO may ask about reward markups. At Kudos, rewards are optional and extra (we never markup rewards or sell points), but that’s not always the case.

Budgeting

It’s also important to outline a budget for the program going forward. When budgeting for recognition, a good rule of thumb for casual rewards, team events, and milestones is to allocate between $125 to $250 per year per person, for example, some clients use the equivalent of 1% of payroll. You may already have a budget set aside for many of these things like your monthly birthday celebrations, years of service awards, company picnic, etc. Make sure to show your budgeting plan moving forward to make everything easy to assess.

Total Cost of Ownership

Finally, most CFOs will want to take a close look at the Total Cost of Ownership. "Total Cost of Ownership is one of the most important things I look at,” says Karim. This goes beyond just the budget and contract. Some questions you should be prepared to answer include: Who will manage this new platform? How many hours per week will that person devote to it? Is another full-time employee required? How much change management will be necessary during implementation? Try to include answers to those questions in your formal proposal. Another important aspect to consider with enterprise software is how long it will take to implement and be fully operational. With Kudos, for example, implementation is quick and straightforward so that clients can get up and running quickly. Lengthy implementation cycles delay the benefits of the system, which is an important consideration. Providers should be available to help you build out a plan to present an accurate total cost of ownership to make the analysis simpler for your finance team.

"Who will manage this new platform? How many hours per week will that person devote to it? Is another full-time employee required? How much change management will be necessary during implementation?"

Answering Question 2: Why are you proposing this? and why now?

Why are you proposing this system or solution? While this is a simple question, your finance team will be looking for specific answers.

Identify what problem this solution is addressing

First, you need to be prepared to explain the specific need or problem. Why are you proposing the employee engagement and recognition platform? Be specific! Are you switching from an existing provider to another due to poor customer service or markups? If this is a new initiative – have your employees recently reported low levels of engagement in a survey? Or are you experiencing higher-than-normal levels of turnover or burnout?

You should address this question by focusing on your organization’s unique needs. It is critical in getting your CFO on board and open to considering your proposal.

Return on Investment (ROI)

A second important metric to touch on is ROI. “I need to know how we can measure results. What does success look like?” asks Karim. Work with your provider for specific examples of ROI that you can share with your CFO. For instance, Kudos can improve employee engagement which in turn can reduce turnover employee turnover. On average, 50-60% of Fortune 500 companies' business spending is allocated to labor, including turnover, which is costing US companies 1 trillion dollars per year. The cost of replacing an individual employee alone can range from one-half to two times that employee's annual salary. The ultimate cost of disengagement is an employee leaving. Demonstrating that an employee engagement and recognition system addresses that is great for your case.

“When evaluating internal proposals, I always look for the tangible and intangible benefits,” says Karim. Tangible benefits have a more direct dollar value associated with them, such as reducing the cost of one system versus another; Intangible benefits are items that are not as simple to associate a direct dollar amount to but still can provide an incredible amount of value to the organization.

For example, beyond turnover, investing in employee engagement and recognition platforms has many benefits, including higher productivity, fewer safety incidents, lower absenteeism, higher sales, and higher profitability.

Kudos ROI

Opportunity Cost

Finally, your CFO will inevitably have to weigh the Opportunity Cost of moving ahead with your proposal. Karim explains, “as a CFO, I’m constantly weighing where I need to allocate capital, and when. I need to determine the priorities today vs. six months from now.” What that means is you’ll have to be able to explain why you’re recommending that your organization move forward with an employee recognition platform now vs. in 6 months. When it comes to employee engagement, the disruption of 2020 was undeniable and has created unique challenges for organizations regarding culture, morale, and turnover. What’s more, the job market is hotter than ever; businesses that don’t find new, better ways to engage and retain their employees will become less and less competitive. These are both excellent arguments for an immediate need for a system like Kudos.


"The job market is hotter than ever; businesses that don’t find new, better ways to engage and retain their employees will become less and less competitive."


Summary Checklist:

  • Present transparent estimate or quote with no hidden costs
  • Consider the total cost of ownership
  • Explain why you are proposing the initiative
  • Have a well-defined expected ROI
  • Explain why this initiative needs to happen right now (opportunity cost)


CFOs have a lot of responsibility on their shoulders. They typically work directly with CEOs and board members to make the best recommendations possible on how an organization can best use its capital to achieve its business goals. Executive buy-in is critical to launching a successful employee engagement initiative. Beyond approval, if you can include an executive like your CFO in the demos and negotiations, they will feel connected to the project and help sponsor the program internally, a key indicator of success. Following the framework presented above will be an effective way to build the case for your recognition and engagement platform proposal.

About Karim Punja

Karim is a CFA Charterholder with over 15 years of experience in corporate financial management and planning. He has done extensive work in investment analysis pertaining to growth strategies, capital investments, restructuring and supporting new venture planning. Karim has also worked on multiple debt and equity financing initiatives, raising over $100M.

Interested in making a case for Kudos in your organization? Start the process today!

Kudos is an employee engagement, culture, and analytics platform, that harnesses the power of peer-to-peer recognition, values reinforcement, and open communication to help organizations boost employee engagement, reduce turnover, improve culture, and drive productivity and performance. Kudos uses unique proprietary methodologies to deliver essential people analytics on culture, performance, equity, and inclusion, providing organizations with deep insights and a clear understanding of their workforce. Book your demo today!

ROI

5 min

The ROI of Employee Recognition

The ROI of Employee Recognition

Employee engagement is the emotional commitment your people have to your organization. You can achieve high engagement if you pursue a people-first strategy.

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Employee engagement is the emotional commitment your people have to your organization. You can achieve high engagement if you pursue a people-first strategy.

In the last decade, there has been a massive shift in employee expectations. The best companies in the world have adjusted to this shift by realizing the power of creating people-first cultures that value the happiness of employees as much as the bottom line. Here's why becoming a people-first organization makes good business sense:

The Impact of High Employee Engagement on your Business:

  • Higher employee engagement leads to increased productivity in the workplace. Gallup’s research has shown organizations that have more highly engaged employees are 21% more profitable than the organizations who score lower on engagement.
  • Higher employee engagement results in lower absenteeism. Highly engaged workplaces benefit from 41% lower absenteeism, saving roughly $3,600 per year for each hourly worker and $2,660 each year for salaried employees.
  • Higher employee engagement is a key driver to customer satisfaction. The Aberdeen Group identified employee engagement as a key differentiator and drive of customer satisfaction.  Organizations that have an employee engagement program enjoy 233% greater customer loyalty.  
  • Higher employee engagement equals lower turnover. Gallup reports that organizations in the top quartile of employee engagement see between 25-65% reduction in turnover. With a cost of $4,129 on average to hire new talent, and around $986 to onboard the new hire, this adds up to a total cost of over $5,000 for each exiting employee, not to mention the unquantifiable cost of losing an experienced employee!
  • Sustainable engagement is linked to better financial performance. Research by Willis Towers Watson has shown, organizations that achieve sustainable high engagement outperform low engagement companies in their sectors with 18% higher earnings growth.

The Kudos Effect on Your Business

The business benefits are clear if your team is engaged. Kudos is designed to take your engagement to the next level with our platform. With over 300 clients globally, we have seen organizations of all types achieve high-performance cultures. Here are a couple of stats that highlight how our clients, that follow our best practices, are benefiting from Kudos:

  • Kudos clients have experienced an amazing 99% activation rate, and many organizations have reached utilization rates above 90% per month.  
  • Kudos enterprise clients have seen the quantity of recognition in their organizations increase by 2.5 times over several years on the platform
  • Kudos enterprise clients have reduced employee turnover by up to 5x over several years on the platform, achieving over 300% return on their investment

The Best Places to Work Consistently Outperform the Market

The benefits of a highly engaged team are clear when you compare organizations that focus on strategies and tactics that win them "Best Place to Work” awards. Organizations that pursue and win these awards consistently outperform theirs peers and the market. Here is the proof:

  • A Jackson Organization study shows that companies that effectively appreciate employee value enjoy a return on equity & assets more than triple that experienced by firms that don’t. Fortune’s “100 Best Companies to Work For” stock prices rose an average of 14% per year from 1998-2005, compared to 6% for the market overall.
  • Glassdoor’s study on real-world stock market performance of companies named to Glassdoor’s Best Places to Work between 2009 and 2019 show on average, stocks of BPTW winners earned 20.3 percent per year between 2009 and 2019, compared to 12.9 percent for the S&P 500.

The business outcomes and cost savings associated with high employee engagement paint a clear picture of why forward-thinking organizations are focusing on implementing a variety of programs and tools that are designed to create sustainable employee engagement.

What distinguishes the winners of Fortune 100’s Best Places to Work or Glassdoor’s Best Place to Work comes down to four common best practices:

  • Aligning their mission and values to purpose, efforts and outcomes  
  • Building a supportive and empowering culture
  • Creating a sense of community and connection
  • Providing opportunities to learn and grow

This tells us is that leading organizations focus on frequent communication with their people to reinforce what they stand for. Frequently recognizing and celebrating successes (both large and small) and encouraging teams to reach for their potential is the key to winning the hearts and minds, achieving higher employee engagement which results in best-in-class corporate performance.

Small Investment, Big Results  

As showcased, there are many positive business outcomes to activating a high-performance culture. In order to achieve and measure these positive outcomes we focus on these seven measures at Kudos:

  • Kudos Activation and participation
  • Kudos® Performance Recognition™ Profiles  
  • Individual Culture Contribution
  • Morale Scores (eNPS, Q12)
  • Employee feedback (Surveys and Exit Interviews)
  • Time savings for HR
  • Reductions in turnover and reductions in turnover costs

The last two measures are areas that you can easily measure the return on investment (ROI). Below we'll focus on reduced turnover costs; this is usually where the largest and most visible impact to the bottom line can be seen:

The ROI of a Employee Recognition

To calculate the ROI you will use the following equations:

ROI = [Savings from Reduced Employee Turnover – Cost of Program] / Cost of Program

Savings from Reduced Employee Turnover = [Cost to Replace Employee + Cost to Onboard New Employee] * # of employee exits that were avoided

If you don't have these numbers for your organization, feel free to use these benchmarks you can use when calculating this for your organization:

  • US benchmarks place the cost of turnover at $19,850/employee
  • For employee exits avoided, use 45 employees for every 1000 employees in your organization

Did you know? Kudos clients typically see an ROI between 2.5 - 7x (ie between 250% to 700%).

Building Your Business Case for Kudos

As one of the first organizations to bring social recognition to the market, Kudos is now the first company to take the promise of peer-to-peer recognition to a more strategic and effective level. We are helping organizations drive individual and corporate performance in over 80 countries around the world and look forward to supporting your efforts to develop a High-Performance Culture.

If you would like to learn more, give us a shout at sales@kudos.com or drop us a line at 587-955-9191. We’re here to help!

References:

  1. Gallup -The Right Culture: Not Just About Employee Satisfaction – Apr 2017
  2. Investopia - The Causes and Costs of Absenteeism – Jun 2019
  3. Verint - Employee Engagement: Paving the Way to Happy Customers – Sep 2015
  4. SHRM - Human Capital Benchmarking Report – Nov 2016
  5. Training Magazine - The Industry Report – Jul 2018
  6. Willis Towers Watson - The Power of Three: Taking Engagement to New Heights – May 2019
  7. Make More Money by Making Your Employees Happy by Dr. Noelle Nelson
  8. Glassdoor - What’s Culture Worth? Stock Performance of Glassdoor’s Best Places to Work 2009 to 2019 – May 2020
  9. 12: The Elements of Great Managing, Rodd Wagner and James K. Harter, Ph.D.  
  10. Mercer - North American Employee Turnover: Trends and Effects – Jan 2020
  11. Work Institute - 2019 Retention Report: Trends, Reasons & A Call to Action 

The Complete Employee Recognition Buyer’s Guide

Everything you need to choose the best recognition partner for your organization, from budgeting strategies to identifying stakeholders and much, much more.

Get Your Buyer's Guide