How to Calculate and Fund Your Rewards Program

Christopher Carson
February 29th, 2024
5 min read

Understanding various reward calculation models is key to developing a system that aligns with your business needs and ensures transparency and standardization in employee engagement. Establishing a clear budget for your program is essential for sustained success.

How to get started

It's key to let your team know how you plan to reward them to keep the motivation high and everyone engaged all year long. Make sure your leaders and managers are in the loop, since some reward systems might fit certain teams better based on what they do in the company. We're going to look into different ways to fund your rewards program, figure out a budget, and get the lowdown on how much low engagement and high turnover can really cost.

Funding Your Rewards Program

Knowing that profits can vary throughout the year for most businesses, it's crucial to consider having a flexible rewards budget. Best practices recommend ensuring products or services provided include a markup to cover team rewards, ensuring you can always acknowledge their hard work.

Here are some examples of rewards-based structure to consider including within your organization for various roles.

Project-Based Bonus: A Shoutout for Team Effort

Think of project-based bonuses as a high-five for the awesome work done on specific projects. It's like setting aside a bonus pot for each project, then sharing it based on how much everyone pitched in and nailed it. Don't skip anyone who helped cross the finish line – whether they were coordinating the client meetings, bringing in the sales leads, or assembling the product. 

To figure out these bonuses, pick the projects that qualify and decide a percentage of how much of a bonus each team member gets based on their involvement. It's a fun way to encourage everyone to work together and bring their best game to the project.

Performance Bonus: Cheers to Your Wins!

Performance bonuses are pretty much the go-to way to say "awesome job" to team members. They're all about celebrating the cool stuff an individual does in a certain timeframe.

When figuring out these bonuses, first pinpoint what counts as a win for each job role. Whether it's meeting consistent quality standards, getting top customer service ratings, or smashing sales targets, that's your starting line.

Next up, decide how the bonus scales with their achievements. Nailed every goal? Full bonus coming your way. Came up a bit short? There's still a bonus, just a bit smaller. It's a straightforward way to encourage everyone to give their best shot.

Want more information on how Tenure’s Approach to Rewards and Recognition model works? 

Profit Sharing: You Helped Make This Happen! 

Think of profit sharing as the cherry on top of the annual bonus sundae. It’s a way for companies to not just say "thanks" at the end of the year but also to share a slice of the profit pie. This method links everyone’s rewards directly to the company's success. So, as the company does better, so does everyone’s bonus. It’s like being part of a big team win. 

It's essential to carefully consider the costs of doing business and your profit margins when pricing a service or product. Ensuring to include a margin for employee appreciation can help fund your rewards and recognition program.

Remember, profit sharing doesn’t have to only be done annually. Companies can calculate a specific percentage of their profits over a contract, month, quarter or year and divide that among employees. How much you get might depend on their tenure at the company or the percentage of their current salary. It’s a solid way to encourage everyone to pull together for the company's growth, knowing that there's a tangible reward for their collective success.

Beyond the Bonus: Continuous Recognition Strategies for Your Workforce

There are natural opportunities throughout the year that can provide individual or the entire company recognition for their contributions to company success. 

Referral Bonus: Get Rewarded for Playing Matchmaker

A referral bonus is basically a thank you note in the form of cash that you get for hooking your company up with top talent. It’s like saying, “Hey, I know someone awesome for this job,” and then getting a bonus when they not only get the job but stick around for a bit. Companies love this because it helps them find great people through the networks of their current employees, often saving on recruitment costs.

The deal is usually that you see the bonus after your referral has been on board for a set period, proving they're a good fit and likely to stay. How and when you get the bonus can vary—some companies hand it over as soon as your referral joins the team, while others might wait until the newbie has passed their probation period.

Making sure the referral bonus is worth the effort is key. It’s not just about adding someone new to the team; it’s about bringing in quality talent that you’re proud to recommend. So, a significant bonus not only rewards you but also motivates everyone to think carefully about who they bring to the table.

Holiday Bonuses: A Festive Financial Boost

Holiday bonuses are like a timely high-five from your employer, landing right when the year wraps up and the shopping lists get long. It's a perfect blend of a thank you note and a financial pat on the back, making the festive season even brighter. This bonus not only fuels the holiday cheer but can also be a smart way for employees to invest and snag some tax benefits before the year ends.

Typically, these bonuses are a slice of your annual salary—think somewhere between 5% and 10%. So, if you're earning $65,000 a year, your holiday bonus could swing from $3,750 to $6,500. It's a gesture that truly adds to the holiday spirit, showing appreciation and giving everyone a little extra to celebrate with or invest as they see fit.

Tenure’s Favourite Bonus

Spot Bonus: Surprise Applause for Going the Extra Mile

Spot bonuses are the workplace equivalent of an impromptu round of applause for doing something awesome that isn’t strictly in your job description. Picture an assembly worker who’s all about positivity, lending a hand, and just making everyone’s day better. That’s spot bonus material. Or the marketing wizards who conjure up a storm of leads, setting the sales team up for success. That’s when you drop a spot bonus to say, “We see you, and we appreciate you.”

It’s not just about the big wins; it’s about those personal victories and the extra effort that keeps the team spirit high. Dishing out spot bonuses is like having secret superhero powers that boost morale and motivation, making people feel seen and valued in the moment. It’s a way to sprinkle a little unexpected joy and recognition, keeping the workplace vibe positive and energized.

Crafting Your Rewards Program Budget

When it comes to setting up a budget for your rewards program, the approach might vary based on your organization's size and the effort needed to manage those funds. Some places might find it smoother to run with a one-size-fits-all model across every department. This standardized approach can simplify management and ensure consistency in recognizing and motivating employees across the board.

Manager Budgets for Appreciation: Keep It Simple

Give managers a budget to say "great job" to their teams each year. This way, they can give out props and perks that really click with what their team culture, keeping everyone feeling valued all year round.

Just grab the team's total pay (or company), pick a percentage for the appreciation budget, and boom—you're set. Most places stick to around 1-2% of payroll for this, with some organizations going as high as 10% of payroll. So, if someone's earning $65,000, you might set aside anywhere from $650 to $6,500 for their yearly thank-you fund. 

Managers should keep a tracker for each team member and the rewards they've handed out. It's all about making sure the high-fives and thank-yous are spread out evenly, so everyone feels seen and appreciated. It is also a great way for managers to keep track of performance for annual performance reviews. 

Quarterly or Monthly Bonuses:

To maintain a steady flow of recognition and motivation, companies can opt for distributing bonuses on a quarterly or monthly basis. This approach aligns with the pace of modern work environments, where immediate feedback and acknowledgment are highly valued. Regular bonuses create a rhythm of positive reinforcement, boosting morale and sustaining engagement over the long term.

An example would be establishing monthly or quarterly milestones, either financial, outcomes or project-based, for the company or department to reach. Senior leaders can meet at the designated interval to review company 

By transparently sharing these goals with employees, it fosters a collective motivation towards achieving success, with the understanding that a designated portion of the rewards will be allocated back to the employees. This approach cultivates a culture of unity and shared purpose, reinforcing the principle that success is a collective endeavour.

Incorporating Rewards into Your Financial Strategy

When setting prices for products or services, integrating employee rewards into your operating expenses is key. This strategy emphasizes the importance of employee recognition within your financial framework, making sure that rewards are an essential component of your financial planning.

Boosting Benefits with Tenure

Tenure transforms the way your employees benefit from rewards. Beyond the recognition they receive directly from you, Tenure's automated savings feature empowers employees to achieve their financial goals more quickly. It's not just about the rewards; it's about accelerating their journey towards financial well-being.

  • Connect Cards: Employees register by linking their debit and credit cards to our secure system for spending tracking.
  • Marketplace Automated Cashback: Over 16,000 vendors in our system enable employees to receive automated cashback, no need for coupons or discount codes, just channelled savings directly toward their goals.
  • Automated Discounts: Purchases automatically apply discounts based on the employee's connected bank cards.
  • Employer Discount Integration: Employers can incorporate their merchant discounts, further enhancing employee savings without the need for code tracking or coupons.
  • Automated Round-Ups: Employees can set up round-up parameters for each transaction during registration, optimizing savings with every purchase.
  • Employee Rewards: For outstanding achievements or milestones, companies can easily send hyper-personalized rewards set by their employees and acknowledgment messages to employees, fostering recognition and appreciation.

Tenure seeks to make employee financial wellness accessible. It enables employees to set their own savings goals, directly linking their rewards to their financial aspirations. With our automated savings feature and employer-based rewards system, Tenure empowers employees to achieve their financial well-being effortlessly. Whether it's funding guitar lessons, saving for an engagement ring, or paying off debt, Tenure offers a tailored approach that aligns rewards with what truly motivates each employee. This personalization ensures that rewards are both meaningful and impactful, contributing to increased productivity, engagement, and retention over time.

Effective Communication of Your Rewards Program

The final piece of your rewards program puzzle is effectively communicating it to your employees. Aim for maximum transparency and clarity. Lay out the reward calculation or distribution process, the benchmarks used, and the total budget allocated. This approach ensures everyone is on the same page, understands the rationale behind reward distribution, and sees how it supports the company's overarching goals.And when someone hits or exceeds those benchmarks? That's a golden opportunity to highlight your rewards program in real-time. Sharing these wins company-wide not only puts a spotlight on your culture of recognition but also sets a living example of your rewards program at work, aligning perfectly with the ethos of your company.

Securing Support from Decision-Makers for a Reward Program

Gaining the support of decision-makers is crucial for launching a reward and recognition program. Demonstrating the financial implications of low engagement can be a powerful argument. Here are some calculations to help articulate the costs your business is currently facing due to disengagement, which could be redirected towards funding a rewards program.

Cost of Disengagement

Disengagement shows up as slow work, lack of interest, easy distraction, and low output. Employees who are disengaged often feel negatively about their jobs and the place they work, which can drag down the whole organization's vibe and success. This bad mood can spread, messing with the team's groove and morale. Tackling these issues quickly can turn things around, making the workplace a happier and more productive spot. Gallup's research reveals that, on average, 17% of the workforce is "actively disengaged," and each of these employees can cost about 34% of their salary.
Cost of Disengagement = [(Number of People on Your Payroll x 17%) x Average Annual Salary] x 34%

Cost of Replace Employee

Replacing an employee racks up significant costs, including recruitment expenses, interviewing time, and the dip in productivity as the new hire gets up to speed. There's also the reduced output from those tasked with training the newcomer, orientation expenses, and the myriad of other hidden costs that come with bringing someone new on board. And that's not even touching on the fallout like lost trade secrets, a hit to team morale, and potential damage to your company culture.
Cost to Replace Employee = (Annual Salary + Benefits) x Employee Experience Level Rate = Cost to Replace Employee

Employee Experience Level Avg Rate1
  • Replacing an entry-level employee costs 30% - 50% of their annual salary.
  • A mid-level employee costs 150% of their salary.
  • And a highly skilled employee can cost up to 400% of their salary.

This approach gives a broader view of the turnover cost impact on the organization, making it clear just how crucial retention strategies, including effective reward programs, are to minimizing these costs.

Exploring Additional Turnover Calculations

To get a more comprehensive understanding of turnover and its impacts, consider these calculations:

Average Turnover Rate: This metric offers insight into the general stability of your workforce over time. Calculate it by dividing the number of employees who have left by the average staff count.
Average Turnover Rate=Average Number of Staffers / Number of Staffers Who Left

Turnover Cost: Understanding the financial implications of turnover is crucial. This can be determined by multiplying the total number of employees by the turnover rate and then by the average cost of departure.
Turnover Cost=Total Number of Staffers×Turnover Rate×Average Cost of Departure

These calculations can provide valuable insights into the health of your organization, guiding strategies to reduce turnover and improve employee retention.

To wrap up, this guide provides insights into various strategies for budgeting your rewards and recognition program, yet it's important to remember that each company is different. There's no universal solution to budgeting for these programs. Gaining leadership buy-in is crucial, and this involves demonstrating the tangible costs and benefits associated with fostering a culture of recognition in the workplace. Tailoring your approach to fit your organization's specific needs and goals is key to successfully implementing an effective rewards and recognition program.

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Article Reference:

Employee Retention — What is the True Cost of Losing an Employee? (2020, July 20). Retrieved from website: 
Christopher Carson
COO, Tenure