For HR leaders and budget owners, the shift from HR planning and budgeting to strategic Employee Experience (EX) investment is a critical one for 2026. This is a prescriptive guide on how to build a powerful business case, strategically allocate funds, and measure your ROI, ensuring your rewards and recognition (R&R) budget delivers maximum value.
Why employee experience should be your top budget priority for 2026
Investing in a great employee experience is simply the right business strategy. Good EX practices can drive significant impact across your organization's business, people, and innovation. Companies that leverage the right EX strategies are:
- 2.4x more likely to have positive business outcomes
- 2.2x more likely to have a positive business outcome
- 5.2x more likely to be a great place to work
- 5.1x more likely to create a sense of belonging and to engage and retain employees
- 3.7x more likely to have positive innovation outcomes
Furthermore, a 2024 Lighthouse Research & Advisory survey of over 900 companies found that 93% of them say EX software provides a positive (or at least neutral) ROI. This demonstrates that EX investments are not a cost, but a proven driver of positive business results.
Where your budget should go: Making the shift to modern employee recognition
A key component of a modern EX strategy is a more effective allocation of your R&R budget. The approach below shows a critical shift from traditional "legacy recognition" to a "modern recognition" model.
Traditional legacy recognition budget breakdown
A typical, traditional budget is heavily weighted towards long-term, milestone-based spending that is infrequent and difficult to track:
- Milestone Awards: 55%
- Nomination Awards: 20%
- Company Incentives: 15%
- Ad Hoc Spending: 10%
Modern recognition budget breakdown
The modern approach reallocates this budget to focus on continuous, values-driven recognition that can be given more frequently and across all employees. This model is powered by peer recognition software and values rewards:
- Milestone Awards: 30%
- Nomination Awards: 10%
- Company Incentives: 15%
- Values Rewards: 15%
- Peer Recognition Software: 15%
- Ad Hoc Spending: 0%
This shift of spend results in the amplification of company values, where all employees can give recognition for free and includes rewards. It also fosters a culture of recognition where the budget doesn't limit recognition moments, and provides the ability to track and manage all recognition activities.
Impact Spotlight: Arrowhead Credit Union
Arrowhead Credit Union was losing employees to competitors who could afford to offer bigger perks. Instead of increasing their benefits budget, they implemented WorkTango's Recognition & Rewards platform to connect employees across the entire organization through public, peer-to-peer recognition.
The result? They cut their turnover rate in half and saved 40% on their rewards budget by focusing on meaningful recognition over expensive perks.
Read the full case study to learn more.
The hidden costs of ad hoc spending
Many companies discover they're spending far more on recognition than they realize. This "shadow spending" happens across departments and payment methods, creating a fragmented approach that's costly and ineffective.
Here’s where ad hoc spending can occur:
- Department managers using corporate credit cards for team celebrations, gift vouchers, or spontaneous bonuses
- Individual teams organizing their own recognition events with petty cash or expense accounts
- Teams running separate incentive programs outside the official R&R budget
- HR purchasing last-minute awards for company events
- Wellness committees buying prizes for health challenges
- Remote teams ordering local treats or gifts for virtual celebrations
This scattered approach creates several expensive problems:
- Lost negotiating power. Small, spread-out purchases across departments eliminate your ability to secure volume discounts with vendors.
- Zero visibility. Without centralized tracking, it's impossible to measure ROI or ensure equitable recognition across teams.
- Inequity and overspending. Managers often overspend in some areas while other deserving employees receive nothing, creating fairness issues that can damage your engagement.
These problems compound over time, but there's a straightforward solution.
The best approach to HR budgeting: Consolidate spend and save money
A modern budgeting strategy focuses on consolidating all recognition spend to gain more control and value.
Consolidating disparate spending
Instead of having a fragmented "Ad hoc spending" budget of 10%, a modern approach eliminates it entirely. This budget is often spent on random, untracked bonuses or departmental gifts. By removing this unexpected budget, you can build an equitable currency for all employees and gain full visibility into your spending.
Shifting for more value
The goal is to move from a budget with high-value, but infrequent rewards (like long-term milestone awards) to a system with smaller, more frequent rewards. This can be achieved by transitioning existing programs to a platform that automates processes and allows for continuous peer-to-peer recognition.
This strategic consolidation and shifting of funds can lead to significant cost savings. The next step is measuring and proving this impact to your leadership team.
Impact Spotlight: Emmaus Homes
Emmaus Homes faced the challenge of connecting employees across 80+ dispersed locations with scattered, inconsistent recognition programs that weren't delivering results.
By consolidating their recognition programs with WorkTango, Emmaus Homes achieved remarkable results while proving that strategic consolidation doesn't mean sacrificing impact:
- $25,000+ in rewards budget savings after streamlining programs
- 40,000+ pieces of recognition sent by employees
- 1,800+ bonuses earned for safety, compliance, and communications programs
- 21-point increase in Glassdoor 'Recommend to a Friend' score
Check out the full case study to learn more.
Prove ROI of employee rewards and recognition investments
To justify your R&R budget, you must measure its impact across three key ROI categories:
1. People ROI
Employee Retention: Establish a baseline and track progress over time. A company like Arrowhead reduced turnover by 49%.
Employee Engagement / eNPS: Track your Engagement Index Score or eNPS quarterly. Rexall improved its eNPS from 0 to 42.2 and its engagement score from 43% to 77% after implementing a new solution.
2. HR ROI
HR Efficiency: Measure the time saved on administrative tasks and the speed of program execution. Schoox now spends only 45 minutes a week on program administration, instead of hours.
Cost Savings: Track savings from moving away from previous vendors or reducing ad-hoc spending.
3. Company ROI
Performance / Productivity: Correlate engagement with business results like sales, profitability, or safety. 65% of organizations said that investing in EX software improved employee productivity and performance.
Customer Satisfaction (CSAT): Identify correlations between high-engagement locations/teams and higher CSAT scores. RBFCU saw a 68% increase in employees hitting high customer service scores.
With these metrics in place to track your success, the next step is adopting the right strategic approach to maximize your investment.
Seven strategic mindsets for your 2026 HR budget planning
As you prepare your budget, adopt these seven strategic mindsets:
1. Employees work in days, not years
Your EX strategy must reflect this reality by enabling continuous employee recognition, not just annual awards.
2. The employee experience goes beyond onboarding
A great EX strategy accounts for the entire employee lifecycle, from your brand experience to candidate, working, and success experiences.
3. EX isn't only HR's job
Your EX strategy must be a collaborative effort, aligning with the broader business strategy and involving leaders from across the organization.
4. What is your HR annual theme or mission?
Define a clear, overarching theme for the year to guide your spending and initiatives.
5. Rome wasn't built in a day… neither is your HR legacy
Acknowledge that change is a journey. Start with small, strategic investments that prove value and build momentum over time. A 2024 survey showed that even a modest investment of under $10,000 can yield benefits of $10,000 to $50,000 or more.
6. Use consumer principles
Just as CRM systems focus on customer experience, your HCM systems should focus on employee experience. Apply consumer-focused principles like listening, social activity analysis, and rewards to your internal workforce.
The 2026 budget cycle represents a pivotal moment for HR leaders. While traditional recognition programs continue to drain resources without measurable impact, forward-thinking organizations are already reaping the benefits of strategic employee experience investments. The question isn't whether you can afford to modernize your approach. It's whether you can afford not to.
