Use of social recognition is gathering momentum in lots of different types of organisation. However even in some of these businesses, the amount of time and attention going into recognition remains much less than is the case for reward. This needs to change as the impact of recognition on engagement and performance will generally far exceed the benefits received from traditional financial reward.

This is not even a new insight – we have known since the 1940s and 50s, with research by Abraham Maslow and Frederick Herzberg, that reward has limited impact on performance. However this understanding has also been reinforced and extended by more recent insights emerging from behavioural science, neuroscience and behavioural economics. These insights increasingly suggest that there are major difficulties involved in attempting to use reward to improve performance.

For one thing, although performance based reward may motivate changes in performance for employees working on a production line it has a particularly low impact for knowledge workers who make up an increasing proportion of the economy. For these employees, reward can encourage short-termism, reduce risk taking, sabotage work relationships and hinder team working and collaboration. The over justification effect suggests that it can also crowd out and reduce the intrinsic motivation to perform well that people started out with.

Incentives also often fail to work, even for production line workers, because they are seen as too small and unimportant. They will also have limited impact on those who are not materialistic and have their own value system or are just more focused on fairness and equity than they are on maximising their own wealth.

Any impact of variable reward is also likely to be short-term so an organisation may find someone will be more engaged for a short period after receiving a reward but they will often and very quickly return to the former level of rather lower engagement. In addition, the reward the person has received soon becomes an entitlement and therefore an even higher reward is required next time to produce the same increase in engagement.

So reward has little ability to motivate but if it is inappropriate or even just perceived as inappropriate it can be a powerful demotivator. For example new research from the CIPD has found that 59% of people suggest excessively high pay for their CEOs demotivates them at work. People may also end up feeling punished if they do not receive the full potential or expected payout.

Given all of this, how much value do we really derive from our reward programmes?

Recognition, on the other hand, does tend to have a very powerful impact on employees, acting as a particularly strong type of intrinsic motivation and providing benefits for both the employee receiving a recognition but also the one who recognises them as well. Recognition also provides ongoing reinforcement of the relationships between employees and their employer rather than leaving this to once a week or once a month when people receive their pay cheques or salaries.

An additional important benefit is that recognition does not just improve individual performance but also aligns all those working for an organisation with its business priorities, for example by linking their behaviours more closely to the organisation’s values and promoting co-operation between employees. This benefit is growing in importance as the world becomes more social and many employees are less concerned with loyalty to their organisation and more concerned about the relationships they have with each other.

Other areas of HR have already gone through major transformation. For example recruitment has moved on from its previous focus on job advertising to placing emphasis on sourcing, employer branding and external talent communities. Learning and development is putting less attention into training courses and more into learning apps, content curation, community management etc. In each of these other areas there has been a significant shift from pushing things at people to creating a pull based on intrinsic motivation and closer relationships between employees.

Moving from traditional reward to recognition needs to be given more attention as part of this broader shift as well. Recognition is not just a much more cost effective means of motivating employees, it is increasingly clear that it is a much more effective approach too.