How Much Does it Cost to Run an Employee Incentive Program?

Running an employee incentive program can range from thousands of dollars each year to a minimal amount for each month. The cost depends on the type of awards for employee incentives; however, there are costs for staff time to develop and implement the employee incentive program.

Type of Employee Incentive Program

The first step in determining the cost of an employee incentive program is defining the type of program you have. If your employee incentive program is based on rewarding employees with monetary incentives, your costs will be significantly higher than an incentive program where employees receive public recognition from the company president or upper-level management. The costs for the actual incentive can range from the time it takes for an executive to pen a note of appreciation to a staff member to thousands of dollars for every employee who receives a form of monetary recognition.

Goal-Driven Monetary Incentives

At Boeing, a major supplier of aircraft and aerospace vehicles for the United States government, 140,000 of its total 158,00 employees are eligible for employee incentives. Boeing's employee incentive program rewards employees when the company achieves its business goals in terms of profitability. The incentive program rewards employees with time off, which doesn't seem excessive at first glance. However, there are indirect costs associated with paid time off. For example, if Boeing's average employee wage is $50,000 per year, or $24 per hour based on a 2,080-hour work year, the company's incentive program can be tens of millions of dollars each year. Employees are entitled to an award from one day to 20 days paid time off. For an average incentive of five days' paid time off, the cost of Boeing's employee incentive program is roughly $960 per employee, which adds up to almost $135 million annually.

Employee Relations Time

Employee incentive programs are usually run by the employee relations section of the human resources department. The time it takes to develop and implement an employee incentive program is another factor to consider in the cost of running the program. Employee relations staff time can amount to large sums if your incentive program requires frequent event planning and coordination, especially for a large employee base. In addition, the time to host the actual incentive program uses staff time, equipment and decorations setup and takedown time, and the cost to rent space for elaborate awards dinners and similar events.

Return on Investment

The cost of an employee incentive program can also be costly in unanticipated ways. In an "Incentive" magazine article titled "Employee Engagement: It's All About Respect," author Vincent Alonzo discusses the downside of employee incentive programs. Alonzo believes employee incentives can backfire, causing short-lived high performance instead of long-term employee satisfaction. He states: " It often means the person's performance is going to decline during the post-award period. They get the carrot, and the effort goes down. It also can lead to demotivating the other employees who didn't get the award." Using Alonzo's theory, the $135 million Boeing spends could be higher, depending on the impact employee incentive programs have on overall sustained performance.

References

• Boeing: Employee Incentive Plan (EIP) Summary
• "Incentive"; Employee Engagement: It's All About Respect; Vincent Alonzo; October 2010
• "Nevada Business"; Employee Incentive Programs; Mark Keays; September 2007
• "Entrepreneur"; Choosing an Employee Incentive Program; Aubrey C. Daniels; September 2002
• "Insurance Journal": Employee Incentive Plans: Make Them Worthwhile; Bill Schoeffler; April 2005

Resources

• HR.com
• Society for Human Resource Management
• National Human Resources Association
• Workforce Management
• Society for Industrial and Organizational Psychology, Inc.
• Employee Benefit Research Institute
• World at Work