What is the difference between Appreciation, Recognition, Incentives and Bonus?

In the course of my 22 years in the field of appreciation and more so recently while researching for my book on the Awards Industry in India, I have come to realise that there is great confusion when it comes to terminology. ‘Recognition’, ‘Appreciation’, ‘Bonus’ and ‘Incentives’ are often used interchangeably, when this is not the case.  Where there is confusion, it impacts the company’s employee engagement programmes, which ends up costing the company too much money, for far lesser results. 

I cannot really blame companies and CEOs for this confusion, because appreciation is an emerging social science. It took me over a decade of working in this field before I began to gain clarity myself. Here is what I have learnt are the differences between these terms. With a better understanding, any employee engagement programme can get stronger and better for the employers as well as for the employees, especially in the Indian context:

Bonus has several meanings in India. The first kind of bonus refers to what is mandated by law, i.e. a payout that every employee with less than Rs. 20,000/- per month salary gets annually, which is 8.33% of their annual payout. Such a bonus is not linked to performance. The other kind of bonus  is a payout that is linked to performance of the individual and of the company.  It can be linked to the rating or performance appraisal of the individual employee. For instance, good performers may get a 20% bonus, average performers may get a 10% bonus and so on. These are usually given annually or quarterly. Furthermore, depending on the company, there may be other types of bonuses paid out, such as Sign-In Bonuses or Retention Bonuses paid during mergers or restructuring.  

Incentives are directly propotionate to employee performance. While the terms, ‘incentives’ and ‘bonus’ are sometimes used interchangeably within some companies, but usually, incentives are more sales based. Sales force is incentivised to sell more to make more. There are cases where incentive payouts can be 100-200% of the base salary, if the person sells really well.

Recognition are usually pre-decided awards that a company has in place, such as Rockstar of the Month, Unsung Hero Award, Above and Beyond Award, Mountain Mover Award, Highest Sales Grosser of the Month, Greatest Improvement of the Month etc. These are great ways of engaging the employees, recognising their contribution to the company and encouraging future good work. Recognition can be for when an employee achieves the goals, it can also be for when the company sees an employee giving it their best. Recognition encourages and motivates people to bring in their A-game, month after month. It also brings the focus on the set goal. 

Appreciation is larger than recognition, incentives and bonuses. While the other three are different ways of showing appreciation, in its purest form, appreciation is not performance based, nor is it linked to any goal. It is a friendly pat on the back, an encouragement, a written word, a phone call, any extra effort that you put into making a human connection stronger with your team. Appreciation is for a person, from another person or group of people. It is telling a team-member that they matter, that their presence in the company matters. It is making the person feel valued. It can be given when an employee performs well and it can even be given when they fall short of their target. Appreciation recognizes the human being behind the effort, thereby building a connection while encouraging employees to keep doing their best. 

All four – bonus, incentives, recognition and appreciation- have to work in tandem for building an amazing culture at work. While bonuses and incentives address the employees’ needs to stay with the company for monetary reasons, recognition and appreciation connects them to the company on a human level. A powerful employee engagement programme needs all four to be the right balance.

In the West, there have been important studies by top scientists, on various aspects of employee engagement.  Here is an article on 3 Amazing TED Talks about Increasing Motivation & Productivity In the Workplace. It sheds further light on how we should be thinking of incentives, bonuses, recognition and appreciation in our own companies.

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Recognition goes way beyond Incentive and bonus pays. 

Recognition is when you see someone doing something good. You see it and recognise either the effort or the final end result. 

Appreciation is when you appreciate people for who they are.

Usually you recognise people when something good happens but you can always appreciate people at any moment even when they may have messed up.

Here is a TED Talk that will explain the difference between Recognition and Appreciation. 

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