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How Recognition and Rewards Can Increase Retention and Engagement

Topics: Retention

Over the past few decades, employee engagement has taken center stage, becoming a top priority for global organizations. However, although HR leaders may be increasing their focus on employee engagement, they are still struggling with retention.

This is a particular concern in 2021 when the talent market has become volatile following the COVID-19 pandemic and economic recovery, with workers quitting their jobs in record numbers.

While engagement is not the only factor that might impact an employee’s decision to leave, Gallup discovered that highly engaged businesses have 59 percent lower employee turnover. The correlation between engagement and retention is undeniably strong, suggesting that organizations worried about retaining employees should consider engagement strategies as part of Total Rewards.

Recognition Begets Loyalty in Today’s Workforce

There is a worldwide multi-generational shift happening in this decade. Unless leaders understand the needs of this new workforce, any outdated employee engagement strategy is bound to fail. It is predicted that by 2025, 75 percent of the workforce will be millennials.

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The tech-savvy Gen Z workforce has also been making its way into the corporate world for the past few years, and their expectations are as different as the expectations of millennials were before them.

Millennials and Gen Z workers are motivated by more than just a paycheck. They want to make a difference. Today’s workforce expects their efforts to be recognized, valued, and rewarded. Their job satisfaction levels are influenced by being incentivized through bonuses, benefits, and appreciation for performance.

According to an SHRM study, 79 percent of millennial and Gen Z survey respondents said an increase in rewards and recognition would make them more loyal to their employer.

Thus, to attract and retain these organizational superstars, you must revamp your compensation strategy to meet their expectations, with rewards and recognition playing an important role.

Make Recognition and Rewards Part of Your Variable Pay Strategy

To retain top talent in a competitive talent market, organizations must first provide a competitive pay package to their workforce. Competitive pay starts with base pay but also includes variable pay, such as bonuses for performance, cash payment for recurring expenses like a phone bill, and discretionary rewards.

PayScale’s 2021 Compensation Best Practices Report (CBPR) reports that nearly three-quarters of organizations give some sort of variable pay to their employees. The variable pay that you offer can vary depending on your requirements, plan, and budget.

Younger employees are more inclined to seek employment in an atmosphere where the achievement of goals is tied to getting suitably incentivized for the work. Thus, a strong variable pay strategy also has a strong chance of boosting your employees’ productivity.

Also, given the dramatic shift in work arrangements since 2020, the need for financial security and incentives for taking risks is becoming a more important part of how an organization’s work culture is evaluated.

One available option to motivate employees is to develop a recognition and rewards program as part of your overall variable pay and total rewards strategy. Rewards and recognition programs are simple yet powerful tools to show employees that you appreciate their achievements on the job, which can inspire loyalty from your workforce. Indeed, organizations rated in the top 20 percent for fostering a “recognition-rich culture” are shown to have a 31 percent lower voluntary turnover rate.

Recognition and rewards can sometimes be even more effective than pay increases. A study from the Journal of Human Performance shows that working adults who engaged in a challenging mental task performed better in pursuit of a non-cash incentive than of a cash-based incentive of equal monetary value. This is because people are motivated to work for reasons beyond pay. While a monetary reward is undoubtedly motivating, it is also essential to feel good about getting recognized.

It should be noted that while the terms “rewards” and “recognition” are frequently referenced as a single item, they are not the same thing.

  • Rewards are tangible and frequently have monetary value tied to them, though they may not be cash. Rewards are transactional. You obtain the output (i.e. the reward) for a specific input (i.e. work).
  • Recognition is intangible and appeals to the emotional side of people. Recognition is relational. It is a way of forming a bond of appreciation and respect between managers and employees and employees and the rest of the company.

There are some considerations in making a recognition and rewards program successful. Let’s look at some examples.

Recognition and Rewards Should Be Immediate and Consistent

There is a famous saying: “Recognition delayed is recognition denied.” Humans aren’t exactly known for their patience. This is amplified for younger generations, as everything for digital natives is only a mere click away.

Today’s workers want rewards and recognition to be timely, frequent, and value based.

  • Timely recognition is acknowledging good performance or effort as soon as it is done.
  • Frequent means providing recognition and rewards often—this implies a program that is consistent and not a once-in-a-blue-moon kind of scenario.
  • Value-based means that the employee understands why they are being recognized or rewarded. This requires building an appreciation-based culture where reward-worthy behaviors and achievements are clarified to all employees.

The effectiveness of rewards and recognition is largely determined by its inclusion into your company’s values and the robustness of the program to support it. Many rewards and recognition programs are applied sporadically. As a result, the entire process of rewarding staff is inconsistent. Employees are unclear about what behaviors are getting recognized and may come to believe that only favorites get awarded for outstanding performance.

Therefore, to make recognition and rewards a consistent and valuable part of your culture, you must create a proper plan, structure, and implementation strategy. To accomplish this, HR professionals should not be the only ones who actively participate in rewarding and recognizing employees. Instead, every manager must be trained on the rewards and recognition program so they can activate an appreciation-based culture.

To increase the impact, make sure that any form of appreciation is done on a public basis unless the employee has specifically requested you not to.

Encourage Peer-To-Peer Recognition

Another common misstep made by most businesses is prioritizing top-down or manager-only recognition while completely overlooking the relevance of peer-to-peer appreciation.

Most people place an extremely high value on what their peers think about them. According to an SHRM and Globoforce report, 57 percent of HR professionals in organizations that implemented peer-to-peer recognition programs reported higher levels of employee engagement. In addition, 28 percent of organizations that started using peer recognition systems saw an increase in retention, compared to 21 percent of companies that did not.

Since the world faced an abrupt shift to remote work, employees everywhere have been forced into an unpredicted environment of anxiety and loneliness. Thus, employees have felt an amplified need to feel more connected. Peer-to-peer recognition may very well be one of the most effective and powerful engagement strategies.

Ensure Meaningful Appreciation to Build Deeper Relationships

To inspire engagement, the way people are appreciated has to be heartfelt. This means that rewards and recognition can’t be insincere. They also shouldn’t be delivered without a human-to-human connection or in a manner that feels disconnected to what the employee cares about.

To boost employee morale, a meaningful reward should come with a “thank you” that is sincere and specific to the employee’s achievement. People want to feel that their contributions have made a difference in the company’s journey. A big part of this is also inspired by the relationship between an individual and their manager.

There are different ways to value employee achievements. According to psychologist Daniel Pink, people are motivated by autonomy, mastery, and purpose. Rewards and recognition can therefore be tied to employee achievements that reflect growing independence, skills, or impact on the organization’s mission.

Recognition and rewards should also not be limited to employees only. Managers and executives should also be recognized and plugged in to the rewards and recognition program. Leaders need to be continuously interested in what motivates their people and to develop personal connections with them. Leaders should act as mentors to their team and encourage their people to be creative, take risks, and try out new things. A mix of such factors will help in establishing trust and bonding, which can drastically improve engagement.

Digitalize Your Rewards and Recognition Practices

In order to prioritize rewards and recognition strategies, the medium needs to be emphasized.

Remote work and the ability to work from home is predicted to increase when the pandemic is over. This has accelerated the need for adopting digital technologies. A McKinsey study suggests that millennials and Gen Z in particular are likely to want digital-centric workplace trends from 2020 to continue.

It is therefore important to make appreciating someone as easy, timely, and hassle-free as possible. This can be done by employing the help of digital channels for employees to engage directly with each other. Rewards and recognition vendors enable this by offering social recognition feeds that look like a social timeline where peers can appreciate, share, like and comment on posts. You can also look into the gamification of your rewards and recognition platform, which encourages people to participate more frequently in appreciation-based activities with immediate gratification for doing so.

Some additional features to look for are:

  • Cloud-based accessibility (so your people can appreciate each other on-the-go)
  • Easy administration (preferably with valuable insights on engagement data and trends accessible from a dashboard)
  • HRMS integrations (so you can connect your rewards and recognition platform with your existing HR system and employee data)


Retaining and engaging talent is by no means a simple undertaking, especially in today’s labor market. Compensation is one piece of the puzzle, but it is not the only consideration in motivating the workforce and building loyalty in employees. The bigger picture comes into play with the culture and values of the organization, which gets reinforced by the behaviors and achievements that are regularly encouraged, recognized, and rewarded.

Building recognition and rewards into the culture isn’t easy, but the business benefits make it worthwhile. A good first step is to include recognition and rewards as an aspect of variable pay and your total rewards strategy. With this step, you’ll be one (big) step closer to having an engaged, productive, and motivated staff with a lot to lose in leaving your organization.

About the Author

Anjan Pathak is the Co-founder & CTO of Vantage Circle, a cloud-based employee engagement platform. He is an HR technology enthusiast, very passionate about employee wellness, and actively participates in corporate culture growth. He is an avid reader and likes to be updated on the latest know-how of Human Resources.




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