Monetary incentives don’t buy workplace happiness.

Motivation using monetary ‘carrots’ — such as perks or financial compensation — has a weak exchange rate with today’s knowledge worker, for whom the most valuable currency is recognition. As the Harvard Business Review explains: “Though necessary, these extrinsic motivators [perks, promotion, pay] don’t necessarily excite people to work smarter or harder. Instead, they prompt employees to do only the minimum required to get that next raise or job title”.

Points and prizes create a false economy; an exchange occurs for going above and beyond but if that same exchange doesn’t happen the next time, employees are let down and reluctant to keep over-performing. In this way, monetary incentives, beyond salary and benefits which are table stakes, can be a deterrent.

Studies by MIT, the London School of Economics, and Carnegie Mellon all note that it is intrinsic motivators that yield positive returns. In Dan Pink’s book Drive: The Surprising Truth About What Motivates Us, he aptly points out, “Humans aren’t horses.”

Put another way: ‘carrots’ do not work as a motivator. Instead, as the studies illustrate, it is intrinsic motivation — such as recognition from managers and peers — that gets results.

Recognition = real returns

Organizations pay a high price when they involuntarily lose employees.

There are the direct expenses, such as recruitment and training; indirect costs, such as decreased morale and the effect on discretionary effort — directly linked to customer satisfaction, loyalty, and lost revenues; and opportunity costs, such as project delays resulting from the loss of employees and the knowledge they take with them.

[Related: Employers, learn what inspires and engages employees to do better work]

Recognition translates to retention and increased effort. Employees are less likely to look for greener pastures and more likely to give more when they feel valued, as seen in the findings of a Gallup study of over 10,000 business units and more than 30 industries.

Employee engagement benefits the bottom line in measurable ways, with the right non-monetary social recognition program providing:

  • Improved employee and customer retention
  • Increased productivity
  • Decreased operational costs

Recognition: Unleashing social and intellectual capital

At one time machinery or land determined an organization’s success. Today it is all about the people.

People represent the intellectual capital of the business. The sleekest offices, the most sophisticated equipment; they are nothing without motivated talent.

Organizations that build on their people are firing on all cylinders. The right social recognition program leverages an organization’s people and their stories to shape the corporate culture. It builds networks, tapping into and enhancing connections between employees, regardless of location or their place on the organizational chart.

These networks — representing an organization’s social capital, can be utilized to support people and projects, ultimately strengthening an organization’s most powerful asset, its talent.

Sharing success stories across the corporate intranet also transforms recognition into a valuable asset for employee development and collaboration, easily accessible to all. Organizational advantage accrues by creating and sharing information, states the Academy of Management Review. This builds an organization’s collective knowledge. Incentive programs simply can’t compete.

Recognition: Numbers speak louder than words

The value of non-monetary recognition initiatives is demonstrated by looking at the metrics that can be monetized, as well as the intangible returns. Retention rates and productivity levels can be measured, with increased numbers translating to a positive return on investment. Surveys and focus groups can add to the ROI, by taking into account how much loyalty and pride employees feel, and their response to recognition efforts.

Studies — from MIT, the London School of Economics, Carnegie Mellon and more — show that the monetary ‘carrots’ offered by traditional incentive programs are not effective. Their findings confirm that it is intrinsic motivation, such as recognition, that engages employees. Additionally, a recent Gallup study found that companies with a higher-than-average employee engagement also had 27 percent higher profits, 50 percent higher sales, and 50 percent higher customer loyalty.

Praise or prizes? Done right, recognition — not rewards — is the heart of enterprise, pumping life into employee engagement, productivity and retention.

For further reading on how recognition programs help to boost corporate culture, check out our case study with Workplace Safety & Prevention Services (WSPS). Following a merger with three associations, the organization developed a strategy using peer recognition as a tool to bring three different cultures into a single conversation around achievement and accomplishment.

This article was originally published on Glassdoor.

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