The Carrot Principle: How Great Managers Use Employee Recognition

By Adam Gostick and Chester Elton

For organizations that do it right, it's a bit like discovering gold in your backyard. Employee recognition, long considered a benefit that costs money, can actually be a management tool that makes money.

At first blush, the idea is counter-intuitive. As leaders, we've become accustomed to viewing recognition programs as a cost of doing business. But employee recognition is evolving. A groundbreaking research study of 200,000 employees, unveiled in our new book The Carrot Principle, presents a new paradigm: Applying employee recognition techniques within a context of goal-setting, open communication, trust and accountability, (what we have come to call the Basic Four) accelerates the impact of all of these critical management skills.

In other words, employee recognition boosts your proficiency as manager. That's The Carrot Principle at work; and here's what it can do for you as a leader:

Increase profitability and customer service levels. Every way they cut the data, from every single angle, empirical evidence from the 200,000-person study (conducted by The Jackson Organization) demonstrated a direct link between employee recognition and financial indicators. Return on equity and return on assets were an amazing three times higher in organizations with an effective way to recognize employee excellence. In addition, the teams and offices rated most highly by employees in response to, "My manager does a good job of recognizing employee contributions," also typically placed in the top scores for customer satisfaction.

Heighten employee engagement and satisfaction. The Jackson Organization's research showed employees who feel recognized demonstrate greater innovation and creativity, take more personal responsibility, demonstrate a greater desire to contribute to the success of the company, and have a stronger emotional bond to the organization and it's goals. In short, recognized employees are willing to do more to help the company succeed, including lead, innovate and serve customers.

Revamping old-school recognition

Of course, there's always a catch; and this blue-sky picture has one too. Just as the research illuminates recognition as the key to success, it also illustrates a universal self-deception: The vast majority of leaders believe they already are effective at recognition.

During the past ten years, we have visited more than two-dozen countries, spent thousands of hours consulting with leaders of Fortune 500 titans, and taught seminars to almost a million managers. Repeatedly, the problem has not been convincing managers that purpose-based recognition can help them to achieve their corporate goals if done right. No, the mountain we continually have to climb is getting leaders to entertain the idea that they might be doing recognition wrong.

Yet the evidence certainly suggests that is the case. In the Jackson Organization survey, the majority of employees reported feeling unrecognized, and only 40 percent of employees reported high engagement and high job satisfaction. What's more, according to a 2006 survey of 14,000 workers conducted by Salary.com, 65 percent of employees are currently looking for other work.

The problem, for most leaders, stems from approaching leadership from the old transactional approach. Within this model, recognition is a leadership tool to manipulate people to work harder and be more loyal, helping the manager achieve his or her goals.

Since these managers approach recognition with themselves--rather than their employees--in mind, they look for quick and easy rewards requiring little thought or preparation, often settling for one-size-fits-all awards. Everyone gets a video rental certificate, a coffee card, a small cash bonus, an event ticket, or the same candy bar. One manager in an interview for the book even gave us the advice, "If you give a bag of M&Ms, always put a bow around it," as if red ribbon suddenly made the award personal to a recipient.

Ditch the bow. Very simply, our research has shown that Carrot Principle managers reward people for performing tasks that are valuable to the team or organization and that help employees achieve their own personal goals. Such purpose-based recognition reinforces their self worth; it links people to the most important actions of the company; it helps leverage employees' unique strengths and their potential; and it provides proof of accomplishment for employees and their team members.

It all boils down to leaders and employees finding a sense of purpose at work through achieving shared goals. When that happens, recognition takes on a very different look and feel than the plastic mugs and dull, year-end banquets of old-school recognition.

Here's one simple example: In one organization we visited, a leader supervised a security guard who also had an outside passion for conservation. Now, most managers would have no idea how to blend this interest with guarding a facility--helping this person be successful in both aspects of his life. Not one to take no for an answer, this man’s savvy manager found a way. He rewarded the guard with a new title: Security and Energy Conservation Officer. Now, during the man's security rounds, his auxiliary job is to turn off lights and ensure doors are closed to keep in heat or cold. An elementary change in duties and title, but one that has brought tremendous job satisfaction for the employee and a tidy cost savings for the organization.

St. Joseph in Lexington, Kentucky, is a great example of the bottom-line benefits of purpose-based recognition. Several years ago, the hospital was experiencing a turnover rate of 32.5 percent. Within two years of implementing The Carrot Principle, St, Joseph doubled its operating margin from 1.5 to 3.0 percent. Employees also became more willing to communicate with management, as evidenced by a 39 percent increase in participation in its Organizational Climate Assessment. By the end of the third year, turnover had fallen to almost half its starting point, resulting in a $4 million savings each year.

Similar results are there for managers willing to put the Carrot Principle to work for their organizations. The results of applying employee recognition techniques within a context of goal-setting, open communication, trust and accountability will soon make this the most enduring and impactful way you have to lead people. And certainly the most lucrative.


Adrian Gostick and Chester Elton are the authors of four bestselling management books. This article is adapted from their new book, The Carrot Principle, published by Simon & Schuster. For more information visit carrots.com.