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Everyone likes to be appreciated. A manager must make an effort to make sure their employees feel appreciated and cared for. An employee who feels under-appreciated or ignored will usually being for fall off in performance. Why should they work so hard when no one notices or cares? It is part of the social nature of humans to seek praise and compliments. It can also help in the reverse situation. If a manager has been consistent in acknowledgement and praise of an employees accomplishments, the employee is much more likely to respond quickly to criticism of a mistake. They will work harder to correct the error and care more about their work if they feel appreciated.
As several other posts mentioned, everyone likes to be complimented for their work once in a while, and I am no exception. I had one boss, however, who played favorites so regularly that it became somewhat disconcerting to hear her praise others without ever receiving any positive reinforcement myself. Bosses should stroke everyone objectively without allowing their personal feelings to get in their way.
It depends on the individual. Some people need that kind of reinforcement much more than others. The trick for managers is to recognize that, to be effective, you have to deal with people as individuals rather than through one size fits all policies. Generally speaking, however, I don't think there's much doubt that positive reinforcement can go a long way toward motivating one's workforce.
I have read studies that show that some people would rather have recognition and individual power in their jobs that an increase in salary. The truth is, even if you are making very good money if you are miserable in your job you are not going to be happy in life.
As pohpei notes, when we do a job well, we can and should stroke ourselves. Self-esteem in based on accomplishment, not on strokes from others. It seems to me that the younger generations have the belief that they are "owed" praise, in school, and then on the job, often for the slightest thing, for example, simply showing up. This is not to say that there should not be rewards for competent performance. However, there are employers who take the position that there is a reward, and it's called a paycheck.
People want approval. We start wanting it when we are kids and never stop. We want people to acknowledge our value as well. Bosses should push themselves to notice when employees do well, not just when they screw up. Employees should learn to appreciate themselves more and be more satisfied with their own approval.
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