In my last posting I talked about the positive impact employee recognition can have on retention. I offered a collection of statistics that defined its return and quantified the material impact it has on business. In this edition, I’d like to continue that discussion by outlining the symbiotic connection between recognition, employee engagement and organizational productivity.

Understanding the correlation has never been more important. The investment companies make is significant. Just a few short years ago, the Incentive Federation said that annual spending on employee reward programs was in excess of $22 billion. Since then, the Incentive Research Foundation estimated that corporate budgets have increased across the board by an average of 17% per annum.

The rise is noteworthy, especially in an economy that has seen real average hourly earnings remain virtually unchanged year-over-year. The increases in non-cash reward spending reflect a growing confidence in their ability to drive positive outcomes. The aggregate spending levels also signal that executive sponsors believe they can drive organic growth via employee productivity.

Employee reward and recognition programs deliver higher returns by doing two things: They keep employees inspired and engaged and they focus them on behaviors that advance the cause of the company. In other words, recognition not only boosts individual engagement, it also boosts corporate productivity.

The formula for achieving this related result isn’t complicated. As any behavioral scientists will tell you, the act of recognizing desired behaviors increases the repetition of that behavior, and therefore multiplies the productivity surrounding it.

Organizations with higher levels of engagement report productivity levels that are 22% higher than those who have not created that same bond with their work force. Companies with the highest numbers of engaged employees outperform those with the lowest by more than 200%. In fact, the output differential between engaged and disengaged employees within the U.S. labor market is quite extraordinary. It amounts to $450 – $550 billion per year.

So what’s the empirical association between engagement and productivity, exactly? What link does employee recognition have to employee engagement?

First, employees are more likely to feel engaged when they clearly understand both the business’s mission and their roles in making it happen. Second, engagement tends to blossom when managers demonstrate that an employee’s efforts have had a positive impact on results. Engagement grows even stronger when employees can, likewise, reward and recognize others within the organization. All of these factors are more likely to occur and happen consistently when the company has a social recognition program in place.

With social recognition, organizations can translate corporate goals into individual action. They can do so across different geographic locations, business units, departments, or functional disciplines. The configurability within the best social recognition systems helps corporate sponsors use their reward and recognition assets in the most coordinated manner possible. The flexibility helps them address specific areas of organizational productivity.

Recognition also helps a company’s front line managers maintain engagement as they work to improve local results. Employees are 71% more likely to feel engaged when their managers consistently recognize their strengths. Workgroups with managers who value their work (and show it) are 43% more productive over all others.

The final factor in the equation is peer-to-peer recognition. Some employees interact more with coworkers than they do their own managers. They work more closely with associates and come into contact with one another on special projects. Either way, today’s employee wants (and needs) the opportunity to show appreciation to their colleagues. This is especially true among millennials where employee happiness is 23.3% more correlated to the connections they form with co-workers vs. direct supervisors. That’s just one reason why programs with peer-to-peer components continue to drive more productivity than those with manager-driven recognition alone.