Total Rewards: Pay Compensation vs. Recognition Rewards

In a June issue, Personnel Today published an article on total rewards and the relationship between pay and engagement. The article quoted economics professor Simon Burgess’s meta analysis of performance pay, which concluded: “Employees respond to cash incentives, often in sophisticated ways that may or may not benefit the organization.”

Cash, of course belongs in an employee’s Total Rewards package – but only in the proper category of cash compensation (salary). The goal of a total rewards package is to achieve the highest return on investment with the optimal mix of rewards. Recognition is a critical component of that package, but is often forgotten by staff at all levels who typically only see pay, benefits and perhaps equity reflected in their compensation statements.

Adding recognition to the mix of total rewards offers a significant opportunity to motivate and engage employees. However, the tools and mechanisms used for each of these reward components must be different as each caters to a different need. Since recognition programs meet a different need for psychological feeding than salary, the rewards should be in a non-cash form to more distinctly differentiate them in the minds of the employees. This also overcomes the challenges with cash uncovered by Professor Burgess.

Organizational behaviorist Fred Hertzberg also dedicated many years to studying these different needs, finding that salary, supervision and working conditions would only prevent people from being dissatisfied. Hertzberg identified only one tool – recognition – that could bring employees to the point of satisfaction because only recognition feeds our Psychic Income™ – our human need for social acceptance, increased self-esteem and self realization that can never be met through compensation.

When communicated regularly and appropriately employees begin to see the complete picture of the company’s investment in them and the value the employee has to the company. Most companies who follow this best practice to realize the value of reporting on individual recognition today accomplish this by adding an additional line item for recognition to employee pay statements.