When it comes to the topic of appreciation, some employers may be asking: why do my employees need to be recognized when they’re already being paid? It’s an understandable question and one I want to address today. In this post, I’ll discuss the key differences between compensation and appreciation and share a few case studies to demonstrate how investing in seeing and valuing your people beyond their paycheck can have a positive impact on your organization.
How the workplace has evolved
Before we dive into the differences between 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. No longer do employees clock in at 9 am, clock out at 5 pm, and view their jobs simply as a means to collect their paychecks.
Today, jobs carry a lot more meaning. Modern employees want purpose, not a paycheck. They value personal growth over work-life balance. They want meaningful relationships, not colleagues. And given that we live in a candidate-driven job market, employees have the ability to pick and choose to work for companies that 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 we’re seeing a rise in learning and development budgets, flexible work environments, mentorship opportunities, and recognition programs.
Key differences between compensation and appreciation
The biggest distinction between compensation and appreciation is that they fulfill different levels of your employees personal, psychological motivators. Let’s visualize this through Maslow’s hierarchy of needs:
How compensation addresses physiological and safety needs
The most basic human needs are related to physiology and safety. These are the needs that compensation addresses since money helps employees 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. Because, at the end of the day, if an employee isn’t making enough money to afford their basic needs, receiving a “thank you” note or a spa day isn’t going to help them feel secure.
However, compensation has its limits. It’s easy to assume that the more money an employee makes, the happier they’ll be. But the data actually shows otherwise; Research has found that, while happiness does increase with wealth, the correlation peaks at earning $75,000 per year. This may explain why Warren Buffett, the third richest man on earth, still chooses to live in the same house he bought in 1958.
This quote isn’t surprising to hear – 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 appreciation comes into the picture.
How appreciation moves employees towards love and belonging, esteem, and self-actualization needs
Let’s reflect on the last time you felt valued and respected at work, as opposed to feeling like you had sufficient income to meet your everyday needs. Was it when someone handed you a cash bonus or a gift card? Probably not. Cash rewards tend to trigger a process of mental accounting, which is when the recipient blends the cash reward with salary and uses it for physiological or safety purposes such as paying the bills. As a result, they derive very little meaning from the reward.
Instead, the last time you felt valued and respected was likely when you had a meaningful conversation with a team member or were thoughtfully recognized for your hard work after completing a high-stakes project. Appreciation forms strong bonds between managers and their employees. It builds trust and security, but moreso, isn’t transactional, meaning it helps to move the employee up the pyramid towards feelings of love and belonging, esteem, and self actualization.
In particular, I believe experiential rewards are the only way to address all of the top three levels of Maslow’s hierarchy, especially since the evidence points to the fact that non-cash rewards outperform cash rewards as a reward tactic. Experiences are memorable and shareable, regardless of demographics or generation, because they create last memories that are associated with your company and are comfortable to talk about with your co-workers. Since experiential rewards aren’t assigned a monetary value (unlike cash rewards) they don’t encourage any competition and prevents a toxic workplace culture from building.
Given this, why would a company confuse employees by mixing the two? Let’s take a look at how investing in appreciation and recognition efforts have helped some of our clients:
Reimagined sales incentives
One of our clients initially approached Blueboard because they were struggling with their sales incentive model: if one of their sales representatives had a successful year, that employee would be promoted to a Senior Account Executive (SAE) and receive a pay raise. However, to make up for their increase in compensation, these SAEs had to meet even higher quotas.
This financial pressure resulted in their SAEs becoming demotivated, unable to meet their goals, and as a result, either leaving or being let go from their roles. In other words, this client was creating their own attrition by trying to use compensation as a motivator.
So they decided to partner up with our team at Blueboard to come up with a more fresh and motivating approach. Since these sales representatives were already making a reasonable base salary, the client decided to incentivize performance with experiential rewards instead, in the form of bucket list travel incentives. Not only did this allow the company to recognize great work and save money, but it boosted their sales team’s sense of esteem and also created a positive, motivating culture as employees shared memories (photos, videos) from their trips over their shared comms channel.
The power of experiences
Another client had an employee on their sales team who earned a Tiburon reward. She used it to go on a romantic dinner date with her husband – an experience that was curated from start to finish by our Concierge team with their personal preferences in mind.
While this employee technically could have gone to a nice dinner with a $500 cash bonus as well, she valued the experience because it carved out the time and space for her to spend quality time with a loved one. Not to mention that she didn’t have to worry about any of the planning, logistics, or execution (she’s already a busy lady!). Here’s what the employee had to say about her experience:
“It’s such a special idea to provide experiences to enjoy. Because my husband and I both travel in our sales jobs, enjoying time together is super special. I hope I receive another Blueboard award soon!”
This experience demonstrated to this employee that her company cares about supporting her needs for love and belonging – even outside of the workplace.
Hopefully, you’ve come away with a clearer understanding of the differences between compensation and appreciation. While a fair salary is absolutely necessary to provide, the role of appreciation in the workplace only continues to grow as employees seek out companies that fulfill their needs for love and belonging, esteem, and self-actualization.