As employers ponder ways to reduce employee turnover and improve employee performance, the question of compensation versus recognition always comes up.

Upper management is rarely receptive to raising salary levels but also questions whether an “Employee of the Month” program would truly be effective. Surely, recognition can’t replace pay raises, can it?

Yes, sometimes..or at least they can be complementary.

Employees — like all complex human beings — are motivated by both extrinsic and intrinsic factors. Among the external, tangible factors, compensation levels are certainly important. But, we humans also have a strong internal need to have our efforts recognized by both our superiors and our peers.

Social beings don’t live on bread alone.

Companies who excel in employee engagement understand this dynamic, and strive for a 50/50 balance between these extrinsic and intrinsic factors. Salaries and wages should be set at levels that are competitive within the industry and region, and commensurate with the effort being required. If this is not done attrition is likely to ensue and it will make talent attraction very difficult.

In addition, a variety of programs should be established that not only recognize, but honor the innovation and effectiveness of individual employees. These can include awards given at monthly meetings and annual conferences, and publicized throughout the organization via newsletters and emails.

The key is not to have these honors bestowed in a vacuum. The more widely these achievements are recognized, the deeper the satisfaction is felt (and the more the company benefits from the resulting motivation — from both the honoree and his or her peers who crave similar recognition).

A wonderful example is a CPA firm which regularly awards beautifully crafted lapel pins in attractive jewelry boxes to employees who go “above and beyond” their individual responsibilities. The pins are rarely worn by the recipients, but are proudly displayed in their boxes in the employees’ cubicles.

Such tangible badges of honor continually stroke the achievers’ egos, reinforce the benefits derived from a job well done, and improve employee motivation and retention.

So, while recognition programs may not replace pay raises, they augment compensation packages in a way that addresses both the extrinsic and intrinsic needs of the workforce.

That’s a small price to pay for improved morale, increased productivity and reduced turnover.