We know the depressingly low percentage of employees that are truly engaged in their work. We also know that this lack of engagement results in costly turnover. That turnover drains as much as $5 trillion out of the US economy each year, making it one of the biggest costs in the American business world. A mere 5% increase in employee loyalty could increase profits by 50%. So goes some of the arguments and research presented by leadership and management gurus Adrian Gostick and Chester Elton in their 2007 book The Carrot Principle: How the Best Managers Use Recognition to Engage Their People, Retain Talent, and Accelerate Performance.

Lots of ideas are out there for how to increase engagement, but what if there’s an additional missing ingredient? That’s what Gostick and Elton think when they ask companies if their employees are not only engaged, but are they also satisfied? Their research shows that the missing ingredient is frequent, effective, meaningful and memorable recognition, which doesn’t necessarily have much of anything to do with monetary rewards or bonuses.

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The impact of this simple principle is profound. When presented with the statement, my organization recognizes excellence, the companies that scored in the lowest fourth had an average return on equity (ROE) of just 2.4% while those that scored in the top fourth averaged 8.7%. Meanwhile, among those who say morale is high in their organization, 94.4% report that their managers are effective at recognition. Among those reporting low morale in the workplace, 56.6% give their managers a failing grade on recognition.

In response to the challenge of improving retention, companies have tried all sorts of things, such as tuition reimbursement for continuing education, more competitive vacation and time off packages, better benefits and higher pay, even better recruitment practices. And yet retention continues to be far from robust. All those perks are great, but they’re missing the mark because what’s really needed is more effective recognition.

Where the disconnect happens is in thinking that work motivation is more externally driven than it is in reality. Too many leaders and managers fail to recognize that what’s at the root of work motivation are such internal factors as the desire for autonomy and achievement. If you think about this in terms of Maslow’s hierarchy of needs, what is needed is more of a focus on the higher-level needs that lead to self-actualization. The more typical monetary approaches all fall more towards the base of the pyramid and fail to make employees feel truly satisfied at work. Effective recognition moves employees further up that pyramid towards the peak of higher satisfaction.

Gostick and Elton suggest paying attention to the following 11 key indicators of employee satisfaction:

1. At work, I have the opportunity to do what I do best every day.
2. My performance is evaluated in a manner that makes me feel positive about working.
3. Conflicts are managed in a way that results in positive solutions.
4. My opinions seem to matter to my manager.
5. My manager shares all the information my coworkers and I need in order to feel part of the team.
6. I receive the information I need to do my job.
7. The organization has developed work/life policies that address my needs.
8. I trust my immediate manager.
9. During the past year, communication between leadership and employees has improved.
10. My manager does a good job of recognizing employee contributions.
11. I have recently received praise for my work.

Notice how few of those have anything to do with money? Gostick and Elton go on to note that the four basic building blocks of establishing a carrot culture include the following:

Day-to-day recognition. These are small, frequent, but impactful signs that managers are recognizing employee contributions, ranging from pats on the back to handwritten notes to team lunches to small gifts.

Above-and-beyond recognition. When employees go that extra mile, you need to step up the recognition to be more formal and celebratory.

Career recognition. Many organizations recognize anniversaries for length of service, but these are hugely underutilized opportunities to highlight key achievements and cumulative contributions.

Celebration events. Find various milestones, whether by team, project or organization-wide that can serve as a catalyst for celebrating achievements.

By paying attention not only to employee engagement but also satisfaction, companies can begin to build a carrot culture that goes a long way towards improving retention.

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