Last month I wrote about the internal "war for talent" and how retention of key performers is the greater and more important challenge than recruitment. This month we take a look at the most important ingredients in retention: Recognition and appreciation -- leading to employee engagement.

The use of rewards and recognition to motivate staff is common throughout organizations of all sizes and industries. Surveys show, for example, that at least 75% of U.S. corporations rely on some sort of recognition-based pay-for-performance program to motivate employees.

Undeniably, recognition is important for employee job satisfaction and engagement. Results of employee surveys indicate that recognition for a job well done is the top motivator for employee performance. Instinctively, we know that finding effective ways to motivate and satisfy employees is crucial to the survival of organizations. So why is it so challenging to effectively recognize staff and why do so few managers know how to show genuine appreciation?

In our knowledge economy, the difference between average managers and great ones is the ability to leverage talent. A typical manager with 10 reports has about 550 hours of productive time under her direction (including her own) in an average workweek. Average managers might spend five to six hours "managing their talent." With this level of investment, these managers cannot expect to properly leverage the 500 cumulative hours of their reports effectively -- whether those reports are data entry clerks or brain surgeons. An investment of 30%-50% is more in line with what the great leaders, like Jack Welch and Bill Gates, spend acknowledging, listening to, coaching, assessing, deploying, recognizing, appreciating, motivating and just thinking about talent.

Seventy to eighty percent of the value in knowledge organizations is based on intangibles like brand, innovation, ideas, creativity, etc. -- people, in other words. The primary job of today's manager is to get the most out of people so that the organization can gain a competitive advantage. By far the most important tool in leveraging talent is in making employees (especially high performers) feel valued and appreciated. Time and again, employee surveys reveal that recognition and appreciation -- even if it is limited to a sincere thanks from a respected manager -- is the most effective motivator and the main catalyst for an engaged workforce.

Most organizations have a core of employees (about 70%) that perform at a "satisfactory" level. Top performers usually comprise about 15%-20% and the rest are poor performers. In other words about 80%-85% of employees are not fully engaged and motivated. Many in this group have skills, experience and education that suggest they should be top performers (otherwise why would they have been hired?). Some may even have been top performers in other organizations.

The disconnect is often in leadership. The challenge is to find or develop skilled leaders who have the confidence, knowledge and experience necessary to know when to acknowledge excellence, and how to make it sincere and motivating. These same managers must have the courage and perseverance to address poor performance head on and work with the employee to correct it or move them out of the organization.

The adage that "employees leave managers not companies" is borne out in exit surveys and other surveys of workers. According to reviews of corporate exit surveys done by Janice Lachance for the Personnel Management Journal in 2000, employees "liked the work and even the pay, they just could no longer stand the way their supervisor failed to involve them or recognize their contributions."

As in Maslow's hierarchy of needs, if employees are paid fairly, their basic need is met. With that as a foundation, we can move on to "higher needs" such as belief in their work, belief in their ability to make a difference, belief in greater, team oriented objectives and their need for belonging.

Much of this comes down to motivation. The ability to motivate or "engage" others is fundamental to excellence in leadership. Motivational skills are, in part, knowing when and how to recognize and how to reinforce positive behaviour. Assuming these skills can be learned, an organization will get results by teaching the skills to managers. If they cannot be learned, the investment might be better spent in figuring out how to recruit and retain managers who already have these skills.

Organizations that know how to motivate and engage a high percentage of their employees are rare and therefore enjoy a sustainable competitive advantage. Each year, Fortune magazine publishes its list of the "100 Best Companies to Work For." Organizations are assessed on a number of factors including how well they engage their workforce and build trust. According to a study released by the Great Place to Work Institute and Russell Investment Group, over the last seven years, the top 100 have produced more than two times the gains to their stock value than the broad market (S&P 500). According to Amy Lyman, president of the Institute, "the study suggests a strong link between workplace culture and a business' financial performance."

Conversely, organizations that fail to motivate, such that a large percentage of their workforce, is disengaged are losing millions of dollars in productivity and turnover costs each year. Calculations by Gallup and by the Center for Talent Retention estimate the cost of disengaged workers to the U.S. economy at billions of dollars every year due to organizations' poor performance when it come to motivating employees. The additional toll on family life and health is more difficult to estimate.

As Joan Klubnik noted in her June 1994 article for The Journal of Quality and Participation: "Recognition is probably one of the most powerful job motivators that we have available to us; its simplicity, impact and availability are almost boundless." It sounds easy, but for many reasons, few organizations can claim to be world-class when it comes to employee engagement.