Most people work in exchange for money by necessity. So, you’d be forgiven for thinking that’s all someone needs for doing their job. But things just aren’t that simple. To truly excel in the workplace, people need to feel valued, and financial compensation is just the bare minimum expression of that value. So today, we’re asking the questions, why does employee recognition work, and why is it so important?

People have an essential need for recognition

Why does employee recognition work? The simplest answer is that we’re just wired that way. Our brains are built to thrive on recognition. It causes the production of dopamine by stimulating the hypothalamus, where the brain regulates things like stress and metabolic processes. Dopamine is basically the chemical our brain uses as a reward response for doing things.

You might feel good for getting through that stack of paperwork, but what makes recognition so potent is that it’s an external confirmation that you’ve done a good job. So, as you might imagine, empowering employee recognition scores results in higher wellbeing scores while increasing revenue.

It should go without saying that managers have a key role to play in highlighting their team’s achievements. But it’s important to have a workplace culture that encourages staff to recognize each other’s accomplishments.

A study from the University of Madrid, of over 1800 workers, found that the effect of peer recognition was almost twice as significant as supervisor recognition, and that workplace recognition benefits both the wellbeing and positive psychological functioning of employees.

Both Gartner and SHRM support the finding that employees care more about peer feedback. This shows that a lot of employees are more motivated by the idea of supporting their colleagues than they are by the prospect of earning their manager’s favor.

So, we understand the psychology behind it. But why does employee recognition work for achieving business success? What are the direct benefits to employers of focusing on employee recognition?

Employee recognition results in more discretionary effort at work

There’s a lack of recognition in a lot of work places, even though it’s clearly an essential need. The Gartner company Capterra found that 56% of UK employees don’t think they get enough recognition from their employers, and only around a third have received at least a verbal thank you for a job well done.

That’s despite 78% reporting that they would work harder if they had more recognition, and 50% believing that employee recognition is a priority within their company. This is where we answer the question of what leaders and managers stand to gain by encouraging employee recognition.

The Capterra study talks about discretionary effort. That is to say, effort that employees put in due to an earnest desire to excel and contribute effectively. It’s basically going the extra mile. But it’s not so much a choice as it is a state of mind, and isn’t something that you can just force employees to give you. When you show employees that they have value, they feel encouraged to live up to that expectation.

Recognition versus reward

Contrary to the words of anyone who’s ever tried to pay an artist in “exposure,” employee recognition isn’t the only way to express the value of someone’s work. If it were, none of us would be getting paid, after all. Recognition is intangible, but often more meaningful than the wages we receive.

Rewards, on the other hand, are about as tangible as it gets. It might be a high street voucher, a tab at a favorite bar, or even just a nice box of chocolates. Of course, some businesses also operate using performance-based cash incentives, but these just aren’t as effective as recognition in the long run, and can cause disagreements and perceptions of unfairness.

Arguably, the most important distinction to draw between recognition and rewards are how you go about administering them:

Employee recognition

It’s more effective than financial incentives in the long-term. But even so, recognition needs to happen on a regularly. It’s not enough to thank someone once and expect that to tide them over until Christmas or their next performance conversation.

It’s impossible to overdo employee recognition. The only exception is that recognition should be fair and valid. But, overall, recognition is highly effective for creating long-term engagement. Many employees place more value on recognition for their work than on material rewards or financial incentives.

Employee rewards

While it’s in your best interests to be liberal with praise, rewards sort of require the opposite approach. Subway vouchers can be a novel reward the first time. But that’s the key word: Novelty, which is what your rewards will lose if you overdo them.

Hitting certain milestones is the perfect time for a reward. It you’re constantly giving employees free stuff, it goes from being a nice surprise to just a matter of course. You should generally try to pick key points in the year to reward employees for maximum effect.

But it’s also important to pick rewards that employees want. It’s worth getting your staff to make some suggestions, to give you some idea of what will go down well. Don’t take your team out to a steakhouse if most of the people in your office are vegans!

Recognition disparity doesn’t affect all employees equally

Some employees struggle to be recognized more than others. And some don’t make headway, regardless of how hard they work. Unfortunately, it’s easy for remote staff to fade into the metaphorical background. So, their success goes unseen. Even worse, they are also promoted at a much lower rate than employees in centralized workplaces. But what makes this particularly galling is the evidence which suggests remote workers are actually more productive that their office based colleagues.