Are you rewarding your employees — or fooling yourself?

Nearly every mid-to-large sized company offers employee incentive programs that recognize milestones and service, and reward high performance with special gifts, travel, health programs and more. This is a standard tool to improve recruitment and retention and makes up a $90 billion industry in the US.

These rewards are paid for through the business and don’t “cost” employees anything. But they do “cost” the company — and employees could get better gifts and the company could deliver a better experience to their employees if it made better choices in their vendor. For the ~25 years when I was a major HR buyer of reward and recognition programs, I chose my vendor based on how easy they made the process for me and how good the thank-you gifts were, but I had no idea how much money was being wasted — until I took a closer look.

I found that some vendors often use unnoticed methods to profit. Specifically, in addition to an annual subscription fee for a rewards and recognition program (standard in the market), there are hidden markups (this can be 30-50%) on items. That means the company is unknowingly overpaying for items that are supposed to reward their employee’s hard work — hardly seems fair does it?

In fact, this just might quash morale.

The markup model means a vendor (in addition to charging the company a monthly fee) is adding a fee at checkout when your employees select gifts on the vendor’s platform. Some vendors also sell old models of items but mark them up so the price matches the newer model. The impact: employees can easily find current prices for items online, and if they find a better price, they lose trust in the platform and their HR team. Their employees think, “Ugh, the HR team is filled with fools and they don’t have my best interests in mind…”

Establishing trust between HR departments and employees is crucial to a company’s success, and a transparent rewards and recognition partner helps maintain this trust.

It’s standard practice at most companies to allocate 1% of payroll per year to rewards and recognition. If the vendor platform you use is charging you hidden fees, you are wasting your precious budget.

Say your company has 10,000 employees, with an average salary of $70,000. This means your company pays approximately $700 million in payroll annually. If it follows the 1% suggestion above, the total rewards and recognition budget will be $7 million annually — which equates to about $700 per employee, per year. Now, let’s talk about your rewards and recognition vendor. If you work with a vendor whose markup is 30-50%, your company spends between $2.1M-3.5M a year — on markups only! Considering you only have a rewards budget of $7M, that’s not very much left to truly reward your employees, is it?

These dollars could be going back into your rewards program to benefit your employees or you could be investing those funds in other company priorities.

Start with Transparency

Ultimately, I care about improving HR’s relationship with its employees, and believe that an effective rewards and recognition program is essential to a happy and motivated workforce. That’s why I joined the board at Fond (reinventing workplace rewards and recognition industry) to help inform other HR leaders about how we can run our reward and recognition programs more efficiently and effectively at a lower cost.

Recognition is also becoming more and more important in today’s economic landscape. If your company can’t trust your rewards and recognition vendor, your employees can’t either. And consequently, they’ll lose trust in you.