In The Happiness Advantage, I describe an experience with a leader at a Fortune 100 company who told me, “We don’t need a happiness program, we pay people to be engaged.” This is a surprisingly common refrain from unenlightened leaders, an assumption based upon the belief that pay equals engagement. However, a meta-analysis of the relationship between pay and job satisfaction shows that there is only a small correlation between the two, and that there is much more to the high performance equation than merely income. We know that recognition and intrinsic motivation are important to our success, but the key is finding ways to effectively operationalize them.

Two new research studies that I’ve been a part of are shaping our understanding of the impact of using digital platforms, like social recognition programs, to improve happiness and business outcomes. In short, these two studies suggest that effective digital recognition programs can help scale organic praise, have a high ROI, and lead to significantly higher levels of employee performance and engagement, as well as increased customer loyalty, as measured by net promoter scores.

The idea for this research germinated when I spoke at the WorkHuman conference in 2015 alongside Adam Grant, Arianna Huffington and Rob Lowe, who despite being experts in different fields, had a consistent message: We need to find effective, scalable solutions to create a positive and engaged workforce. I left the conference with a single question that has shaped my work over the past year: Could the digital revolution aid in raising happiness, rather than merely increasing the speed of information, and thus our workload and stress?

I started studying ways to effectively operationalize praise and recognition to effectively impact business outcomes. I began by partnering with Globoforce, a well-known social recognition program, which offered to share their vast amounts of research for anonymous, aggregate correlations with business outcomes at select partners. The fruits of that labor are starting to materialize, and could help shape better recognition programs at work or validate your existing approach.

One of the companies we decided would be a good starting point to focus upon was JetBlue, which has been named by J.D. Power as the highest in customer satisfaction among low-cost carriers for 11 years running. Part of their success seems to be due to their focus upon social recognition. Globoforce was able to create a social “peer-to-peer” recognition program at JetBlue where coworkers could nominate a person for everyday contributions as well as exemplary work or effort. The story of success is shared throughout the company on an internal newsfeed. The recipient of the recognition is then given points that they can decide how to spend — they can elect to redeem the reward immediately for a dinner, or to save up for countless options like vacations or a cruise. This program has several interesting components:

• Because the recipient selects how to use the recognition reward, there’s increased engagement with the platform. This sort of personalization also avoids the problem of vegans getting steak dinners as a benefit or a deaf employee receiving an iPod (both true stories of recognition gone wrong).

• The program has the flexibility of choice, giving the recipient the ability to redeem the reward for something meaningful.

• The recognition is shared internally, so not only does the recipient receive extra congratulations from others who see the post, but other employees in the company also hear stories of positive behavior that can serve as a model.

• Because the recognition is peer-to-peer, it feels less like a performance review, and more like an organic expression of gratitude.

• The decision to use recognition as an on-the-spot bonus instead of merely pay increases is a fascinating one, because pay increases can create new mental anchors for how much the person feels happy earning, whereas the social recognition program is ongoing, unexpected and harder to form a mental anchor around.

The JetBlue data revealed that for every 10% increase in people reporting being recognized, JetBlue saw a 3% increase in retention and a 2% increase in engagement.

Turnover can be one of the most expensive problems at a company; research on the costs of replacing an employee range from 20% of their salary to 150%, depending on how you calculate it. So, a 3% change in this number can represent tens of millions of dollars depending on the scale of the company. In addition, the JetBlue data also showed that engaged crew members were three times more likely to “wow” their customers and twice as likely to be in the top 10% of net compliments reported by customers. Thus, recognition is not just an issue of employee retention; it also has an impact upon customer satisfaction and loyalty as well. And those numbers are actually conservative. Symantec found a 14% increase in engagement scores based upon their social recognition program.

In terms of analyzing the ROI of recognition, clearly the financial impact of increased retention, engagement, and customer loyalty are immense. Supporting this finding, Globoforce partnered with another industry-leading Fortune 500 company that conducted a similar analysis to examine the impact of an increase in base pay versus an increase in recognition on employee engagement rates. When they compared a small salary increase with a recognition investment, they found that almost half the engagement boost could be achieved with the recognition investment, yet it would cost a mere 5% of the investment they would’ve made in salary increases. To state it the other way, recognition could create half of the engagement boost compared to a salary change, but would be 95% less expensive.

Let me say clearly: recognition should not be in lieu of deserved pay increases; they can and should work in tandem. I’d love it if every company could give raises to the average worker for doing good work. But as companies do not have unlimited funds and many report to shareholders, the question of ROI becomes critical, especially in a world in which employees are under-recognized and under-praised for their efforts.

I am now working with (my wife) Michelle Gielan and Amy Blankson from the Institute for Applied Positive Research to find out how long a happiness boost lasts from a single pay increase versus more frequent organic boosts like digital praise. Our hypothesis is that if a company gives a pay increase, the engagement bump is short-lived, as the new income level becomes the mental norm — necessitating another raise later to maintain the same level of engagement. This is in line with current research on extrinsic/intrinsic motivation as described in the HBR article “Does Money Really Affect Motivation?” But because the peer recognition program is ongoing, there is no indication of a tolerance point at which the engagement scores return to a baseline.

As our companies continue to grow and expand and technology advances, we are finding ourselves increasingly fragmented from our social support networks both at work and at home. The digital revolution has increased our speed of work dramatically. And this research suggests that technology may also be one of the keys to connecting us back together — creating the type of effective, organic and peer-based praise people need and deserve as they endeavor to lead their teams to greater success…and hopefully greater happiness.

READ ONLINE