Editor's note: This post was updated February 8, 2023.
The status quo social contract between workers and companies is largely transactional: employees contribute time, skills, and labor, and in exchange, are compensated by the company. In this scenario, personal fulfillment, purpose, and meaning—let alone employee appreciation—aren’t necessarily factors.
So if this traditional contract worked in the past—why should employees be recognized outside of being paid to do their jobs?
Because this isn’t really the question we should be asking in our post-pandemic world, where employees are clear that compartmentalizing their “at work” and “after work” selves doesn’t cut it anymore. Gartner research reports that as employees weigh the role of their professional life with their personal one, the vast majority (82%) want their workplaces to see the whole person beyond their job.
As employees and their employers continue to navigate work-life balance, negotiate hybrid remote work, and contend with economic uncertainty, the conversation needs to shift from asking “why” to asking “how” employee appreciation matters outside of compensation. Because the social contract has changed, for good—and meaning, purpose, and supporting the whole employee with a more personalized approach are table stakes for today’s employee experience.
What hasn’t changed: Compensation still matters, a lot, particularly when inflation reaches record highs and pushes people to stretch their paychecks further. And we’re having important, long overdue conversations about compensation transparency and pay equity in the workplace. But focusing on compensation alone is a missed opportunity for HR leaders and their organizations to keep top talent. The workplace experience today needs to reflect an intentional investment in both compensation and appreciation.
To build a workplace and company culture that recognizes the whole human, HR leaders and People teams can start by getting a better understanding of the disconnects between what employers think employees want, employee expectations, and the key differences between employee compensation and appreciation. We’ll tackle how, along with the definitions of these core aspects of the employee experience, in this post. Plus, we’ll share a couple of case studies to demonstrate how investing in seeing and valuing your people beyond their paycheck can have a positive impact on your organization.
Why employee appreciation matters outside of compensation: How the workplace has evolved.
Before we dive into the differences between employee compensation and appreciation, it’s important to understand what your employees expect from their workplace. Today’s work environment is significantly different than it was a decade ago.
Today, jobs carry a lot more meaning because employees want purpose, not just a paycheck. They value personal growth and work-life balance. They want meaningful relationships, not just work colleagues. They’re looking for workplaces where they can engage their interests, develop their careers, and explore their passions in and outside of the workday in more personal ways.
And despite rounds of layoffs, the U.S. unemployment rate is 3.4%, the lowest rate in decades. Job growth continues to drive a candidate-driven job market, where employees have the ability to pick and choose to work for companies that will fulfill all of their needs.
As a result, employers are having to find new ways to raise the bar and make themselves more attractive to potential candidates. Competitive compensation has become table stakes and the investment in supporting the employee’s whole self is becoming increasingly important. That’s why learning and development, flexible work environments, mentorship opportunities, and recognition programs are top of mind for HR teams and their workplaces.
The key differences between employee appreciation and compensation.
The biggest distinction between employee compensation and appreciation is that they fulfill different levels of your employees personal, psychological motivators.
While understanding the vital role employee recognition plays as separate from compensation is key, it’s equally important to note that appreciation won’t solve compensation problems. Think of the relationship between employee appreciation and compensation as mutually beneficial: they work together to support your people in a well-rounded, more comprehensive way.
The bottom line: satisfied employees are engaged, fulfilled, appreciated, and compensated fairly and adequately for their work.
To get to the heart of the differences and the relationship between compensation and appreciation, it’s helpful to visualize this through Maslow’s hierarchy of needs:
Competitive compensation addresses physiological and safety needs.
The most basic human needs are related to physiology and safety. These are the needs that employee compensation addresses since money helps them access essentials like food, water, and shelter. It’s critical that these needs are met before moving up to the higher tiers of the hierarchy, such as love and belonging. Receiving a “thank you” note, gift card, or a spa day as a form of employee recognition are all nice gestures—but at the end of the day, if an employee isn’t making enough money to afford their basic needs, those aren’t going to help them feel secure.
Money doesn’t always buy happiness, but research has found that wellbeing can correlate with higher incomes because of what those incomes afford you. University of Pennsylvania research on the correlation between compensation and satisfaction analyzed the data of 33,000 U.S. adults, revealing people’s life satisfaction and wellbeing increases as their income does. This refutes findings from the well-known study by Angus Deaton that happiness and wellbeing plateaued at a $75,000 income. Importantly, the key takeaway from the University of Pennsylvania study is that compensation positively impacted both “experienced wellbeing” (or, how someone feels during the moments we experience of life) and “evaluative wellbeing” (a person’s evaluation of their life when they pause and reflect).
It’s worth noting that it’s difficult to translate cash into feelings of love and belonging. Cash also has a tendency to bring out the competitive nature in others since it’s linked to survival, which can actually create a demotivating and toxic culture. That’s why compensation shouldn’t be used to address needs beyond the employee’s baseline psychological motivators. But that’s where authentic employee appreciation comes into the picture.
Employee appreciation fulfills individual belonging, esteem, and self-actualization needs.
Think about the last time you felt seen and valued at work. Did it feel differently than when you get your paycheck? Probably. Because recognition and appreciation meet different—but equally important—employee needs.
The long-term wellbeing benefits of appreciation and employee recognition.
Employee wellbeing considers the overall health of employees in four main focus areas: mental, physical, emotional, and financial elements of wellbeing that influence how they show up at work. Feeling valued and respected is a core part of fostering wellbeing in the workplace.
Think back to the last time you had a meaningful conversation with a team member or were thoughtfully recognized for your hard work after completing a high-stakes project. These are scenarios where personal needs and professional worlds combine to make you feel not only seen, but fulfilled and acknowledged for your contributions.
This also reflects a sense of belonging: feeling accepted and embraced as a full member of your work community. Belonging is hugely important. Just one negative experience where someone doesn’t feel like they belong and are included—what HR Therapy host Hebba Youssef calls an exclusion event—can lead to a 25% decrease in performance for that employee. Multiply that across your company, and well, that’s a major problem.
Some of the benefits of employee appreciation and recognition that support wellbeing at work include:
- Forming strong bonds between managers and their employees. Employee appreciation should build trust and security, and avoid being transactional. This helps to move the employee up the hierarchy of needs pyramid towards feelings of love and belonging, esteem, and self actualization. One way to do this is by using regular 1:1s to check in and ask people how they are feeling—not only about work, but in their life. Though not everyone wants to share what’s going on in their personal life (and that’s ok) creating an intentional space where that conversation can happen is a crucial step towards building psychological safety in the employee-manager relationship.
- Helping people to feel like they belong, and want to stay with your company. When employees feel seen and heard at work, they are more likely to stay. An analysis by Stitch Marketing Research reveals that workplaces with a dedicated employee recognition program scored 61% higher than typical companies on Great Place to Work’s better places to work scale.
The long-term motivational benefits of experiential employee rewards.
Employee appreciation in the form of recognition and reward can also help organizations motivate employees beyond the impact of their salary. Between the global pandemic, ongoing cultural shifts, recession fears, and economic uncertainty, with so much competing for our attention these days, it’s no wonder employee motivation has taken a hit. In fact, a Harris Poll study reveals that 40% of employees in the U.S. say their motivation at work is heavily impacted by current global events.
Experiential rewards are an ideal solution because they motivate and support employee wellbeing, helping your employees meet needs at the top levels of Maslow's hierarchy.
- Experiences are memorable and shareable. Regardless of employee preferences, experiential rewards create lasting memories that are associated with your company values and are great examples of topics to connect on with your co-workers.
- Experiences keep the focus on the meaning, not the monetary value. Multiple studies have measured the quality of anticipation before and after different types of purchases. They found that the value people derive from anticipation tends to be greater for experiences over material goods (like a blender). Another benefit: Since experiential rewards aren’t assigned a monetary value (unlike cash rewards) they don’t encourage any unhealthy competition and prevent a toxic workplace culture from building.