Employee Recognition vs Compensation: What Drives Higher Employee Satisfaction

When you are motivated, you feel more passionate and ready to take things on with enthusiasm. Tasks are executed on time; emails get answered; you are more pepped.

When you are unmotivated, you have to literally drag yourself to work. You slow down; you lack the energy to answer emails and attend meetings; reluctant to move forward and after a point of time you may give up.

The fact is knowing how to motivate your employees is a very important part of leadership. You cannot get anything done without an engaged and motivated workforce and much of that is based on employee satisfaction at work.

While some may argue that nothing beats fair compensation when it comes to employee engagement and job satisfaction, is it enough? Do employees show up to work just to earn a pay-check?

Of course, salaries and compensation have to be competitive enough to attract and retain employees in the first place. However, once employees have settled down and are able to meet their basic needs, money is not the only thing that motivates them. Non-financial factors like recognition, camaraderie or peer recognition, job enrichment, autonomy and flexibility can come into play to help drive their happiness and engagement at a deeper level.

Several surveys have been conducted to measure employee satisfaction levels and understand what motivates them. The diverse results of these surveys can often lead to confusion. While some say monetary benefits, including salary, bonuses or pay-hike, can boost employee motivation, others favour recognition as the best way to foster employee satisfaction in the long run.

Everybody knows that compensation is always a primary concern. However, if you focus on salary alone, without recognising your employees for their contribution, they are likely to feel disengaged at work eventually. In other words, if your employees are not getting recognised or appreciated for what they do, no amount of money can win their loyalty.

When 200,000 employees were asked in a popular survey what factors motivate them in a job, money didn't even make it to the top five! Click To Tweet

Is It All About The Money? Not Really!

It’s not always about money. A raise has traditionally been seen as the best way to reward better-performing employees. Sure enough, it will make the employee feel happy. However, will it help to increase or sustain the same level of satisfaction?

Probably not. If an employee feels overworked and undervalued before their annual appraisal, they are likely to feel the same even afterwards. This means that engagement and motivation stem from something more substantial than money.

In fact, several studies suggest that the association between salary and job satisfaction is relatively weak.

Does Recognition Outweigh Compensation?

According to a Harvard Business Review research, the top four indicators of employee motivation – satisfaction, employee engagement, commitment, and intention to quit – were not influenced by salary. On the contrary, it was found that positive social recognition from both managers and peers is the most effective way to foster engagement in the long run.

When employees feel recognised and appreciated by the people around them, they have a greater sense of belonging and commitment. Click To Tweet

Simple recognition initiatives like sending employee appreciation emails, regular check-ins, feedback, and telling people what you value about them can motivate your employees substantially.

Importance of Employee Recognition vs Compensation

During an uncertain economic climate, employers might not be able to provide a raise even if they feel their employees deserve it. With budget cuts during the pandemic, bonus schemes are being restructured, if not done away with altogether. So how can you ensure that your staff feels engaged and satisfied during these times?

Employee recognition can come to your rescue and motivate your employees to stick to the organisation’s objectives and deliver the desired targets. A simple ‘thank you’ or ‘well done’ is all it takes to instil a sense of belonging and loyalty in your employees.

Employee recognition need not be as extensive or elaborate as monetary benefits. Basic appreciation and simple initiatives of providing consistent feedback to employees, emphasis on development opportunities for employees, and offering flexible work arrangements can go a long way to boost employee morale.

Here are some reasons why employee recognition trumps compensation when it comes  to employee satisfaction:

Acknowledgment Makes Employees Happier

The workplace should be an environment where positive enforcement is practised, and constructive feedback is given regularly. This provides instant recognition for your employees, boosting their self-esteem and job satisfaction.

It motivates employees to repeat the same behaviour again and again that won them praise and appreciation.

Improves Employee Retention

Offering attractive compensation may attract talented employees to your organisation. However, how do you keep them motivated in the long run? The answer lies in your employee rewards and recognition programs. Recognition programs should be an integral part of your strategy to create an all-round effect on employee engagement levels.

Boosts Morale

The way your organisation’s managers treat their employees matters a great deal. Acknowledging employee efforts publicly can help motivate employees. Simple gestures of appreciation from managers may seem trivial but are among the most cost-effective ways of employee recognition in the workplace.

Cultivates a Culture of Self-Improvement

Employee recognition can lay the foundation for continuous self-improvement when the employees feel valued. Another great way to recognise them is by constantly providing opportunities to up-skill and learn.

How to Strike the Right Balance

A popular theory in the HR domain is Frederick Herzberg’s motivation-hygiene theory. This theory states base pay or compensation is a hygiene factor.

Once that basic need is satisfied, employees look for intrinsic rewards to stay motivated.

The key lies in finding the motivational ‘sweet spot’ related to the internal psychological desire to achieve things that have a further effect on employee satisfaction. Compensation can only go so far, but if you give your employees competitive compensation along with recognition for their work, you can make a dramatic effect on employee engagement and productivity.

The war for talent has never been greater in a world where compensation alone is no longer the primary factor in retaining employees or boosting job satisfaction. Organisations must focus on other intrinsic factors in tandem with compensation and benefits to create a desirable and engaging workplace.

So, what do you think are the most important factors that drive employee satisfaction? Are you surprised to find out that money does not top that list?