Why the Spend on Recognition Events needs to be a part of your Annual Recognition Budget?

When it comes to Recognition Programs, I have been really stunned to see how much of focus the HR folks have around Recognition initiatives & more specifically the events that involve the “C” level executives in their companies – e.g. an event where the CEO presents awards to employees.

When you add up the costs of these events – travel expenses for a lot of people (the CEO is coming – so the event must be important, we should also attend), venue costs (the CEO is participating, so we need a good location – a Taj hotel maybe), food costs, support costs, non-measurable time costs of all the people who attend the event, the actual awards being presented (if the CEO is giving it, the award needs to be nice a.k.a expensive), the numbers turn out to be sizeable. Now when you compare this number to the overall recognition spend in the company, that is when you realize that in many cases 30-40% of the Recognition spend (in some case 60%+) is for a few of these events.

I dived a little deeper into why this is the case and based on a reasonable sample set of conversations, the reason this happens can best be explained using the following analogy – when buying a house, almost everyone spends extraordinary time and effort in making sure we get the best possible deal at the lowest possible price – in most cases the measure used is the cost per square foot. After getting this figure down to a minimum (say Rs. 2000 per sft), say for a 1500 sft apartment, we end up spending the following:

Basic Cost of the Apartment: INR 30,00,000
1)Electricity & Water deposits: INR 200,000
2)Car Parking: INR 150,000
3)Service Tax: INR 80,000
4)VAT: INR 150,000
5)Stamp Duty & Registration Charges: INR 200,000
Total Additional Costs: INR 780,000
Total Cost of the Apartment: INR 37,80,000
Now this is a 26% increase over the basic cost.

Now we need to add the following:
1)Wardrobes: INR 100,000
2)Modular Kitchen: INR 100,000
3)Electrical Fittings: INR 50,000
4)Furniture: INR 100,000
5)Miscellaneous Interior works: INR 50,000
Additional Costs: INR 400,000
Final Cost of the Apartments: INR 41,80,000
This is a 40% increase over the basic cost.

Recognition seems to be working the same way – The HR folks fight hard to get a budget for the program – end up getting a number “x” – typically a low figure. Now this figure “x”, in most cases does not include the cost of the events. So in reality, the money for the events gets spent from “another budget/line item” – the CEO wants to do the event – so the finance folks will figure out where to place the expense. Travel gets booked under “Business Travel Expenses” etc.

This model is fine if the additional item is a small component of the overall Recognition budget (therefore negligible). But if the spend on the event turns out to be 40%-60% of the Annual Recognition budget of the company, isn’t there a problem – or Am I only one seeing it as a problem?