Why saying "Thank you" is more than just good manners

A 10-year study of 200,000 managers and employees suggests that praising people for a job well done may lead to bigger profits, says Fortune's Anne Fisher.

By Anne Fisher, Fortune senior writer

NEW YORK (Fortune) -- Dear Annie: I changed jobs last year, going from a small company (where I had worked since the start-up phase, over a decade ago) to an organization about 10 times bigger. I've made the adjustment pretty well, except for one thing. My old employer was very gung-ho about recognizing people for their achievements. If someone met a tough deadline or went above and beyond for a client, that person got a public pat on the back and maybe even a "prize" like a free dinner for two at a nice local restaurant.

My new company is completely different. No one ever says "thanks" for anything or shows any appreciation for extra effort, and as a result people don't do anything more than the minimum required to get the job (sort of) done. I think this hurts the business, but I can't convince my boss. Any thoughts? - Trying to Help

Dear Trying: I'd be willing to bet we've all worked in organizations like yours, at one time or another. Many years ago, Fortune had a top editor who made a point of never praising anyone for anything. Asked why not, he replied, "People who are good know they're good. They don't need to hear it." Well, if any proof is needed that that approach to managing people is wrongheaded, here's where to find it: "The Carrot Principle" (Free Press, $21.00), a fascinating book by Adrian Gostick and Chester Elton, both consultants at Salt Lake City-based consulting firm O.C. Tanner (www.octanner.com).

The book's subtitle says a mouthful - "How the Best Managers Use Recognition to Engage Their People, Retain Talent, and Accelerate Performance" - but the basic idea is simple: People will work harder and more enthusiastically for an appreciative boss, and companies that praise topnotch performance are more profitable than those that don't. In a study of 200,000 managers and employees over a 10-year period, Gostick and Elton found that, in companies where few people agreed with the statement "My organization recognizes excellence", annual return on equity averaged a paltry 2.4 percent. By contrast, companies with a culture that emphasized thanking people for excellent performance racked up returns more than three times as high, at an average of 8.7 percent. (For the complete study, go to www.carrots.com, under Research.)

Of course, anybody who has taken Statistics 101 will tell you that correlation doesn't always imply causation, and companies that praise their workers are probably doing lots of other things right, too. Even so, at a time when employers are competing fiercely for top talent, the authors note that 79 percent of employees in a recent poll who had quit their jobs cited lack of appreciation as the main reason. It seems saying "thank you" is even more important in retaining people than paying them more money - and a pat on the back is free.

How can you persuade your boss to start recognizing his team's achievements? Adrian Gostick says that about one-third of managers in the Fortune 100 companies he works with are, like my old editor, dead set against the idea of praising people. "They don't believe in it. They're always the ones sitting in the back of the room at our seminars with their arms folded, and that negativity often spreads to others," he says. "To overcome their resistance, we start by asking why they don't want to. Often they say they don't have time. But another big reason is, lots of managers want to be seen as 'tough', and recognizing people looks 'soft' to them. Another obstacle is that they just don't know how."

That doesn't mean your boss can't change. Gostick says that, in a former career as vice president of a bank, "I had to be told to recognize people. My employees urged me to do it." He adds, "We've found that, if you encourage a reluctant boss to start with just a few small things, he or she is often pleasantly surprised by the response and will want to do more."

"The Carrot Principle" is full of creative ideas for thanking employees, and you might take a look at those, and pass a few suggestions along to your boss. But some of them - like buying lunch for all employees who have to work on a Saturday and inviting their families to join them; or springing for an extra plane ticket so a spouse can accompany an employee on a business trip - may be too much for the budget. No problem.

Says co-author Chester Elton, "You don't need to spend a lot of money to make an employee feel valued. We find that a handwritten thank-you note, which costs next to nothing and takes just a couple of minutes, is something people really love to get. It's far more effective than an e-mail, especially if it's timely and specific. It should say, not just 'Way to go!', but 'You did a terrific job on that XYZ project'. We've seen people who are so pleased to get these that they keep them for years."

But let's say you show your boss the bottom-line results of Gostick and Elton's research and make a few gentle suggestions for how to start recognizing people, and he doesn't budge. You know the grassroots-political maxim, "Be the change you'd like to see in the world"? If you were to make a habit of thanking colleagues and praising the people around you for a job well done - beginning with (why not?) your boss - who knows? You just might start something big. Top of page

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.