I never understood this advice. Not to sound arrogant, but I know I'm good. What I need from you is enough financial compensation so that my skillset/experience matches up with a competitive salary or I'm going to go elsewhere for that salary. I'm not a child. I don't need reassurance and tricks like "hey lets have casual Thursdays and a pingpong table" are NOT substitutes for the money I deserve.
Top performing teams have great leaders. Great leaders inspire. Inspired workers value the praise.
I'm my own boss nowadays, but back when I was working for someone else, the teams I enjoyed the most had great leaders. Looking back, whenever I ended up being led by someone uninspired I jumped ship within months.
It's not about the money, it's about the respect. If you are doing a good job and make the company money you deserve a cut, not a pat on the shoulder. When the company is paying you your salary they are putting value on your work.
Leadership and inspiration are nothing without respect.
1) It becomes expected by the employee. A raise has an effect the moment it is awarded. A couple of months later, the productivity effect wanes and the new salary is part of the steady state.
2) For most people, beyond an hygienic level, it's not really what they want. Of course nobody will tell you they wouldn't like a raise, but in practice they prefer a better work environment: flexible schedules, remote working, simple hierarchies, a trove of other factors that make working fun or at least enjoyable.
Recognition in front of peers is good for other reasons, but its not a replacement for financial reward.
This might sound strange to you, but some subset of the population won't know it. Ever heard of the Dunning-Kruger_effect[1]? Actual competence may weaken self-confidence and the unskilled might have illusory superiority.
There are also many cultural and social environments where an individual person comes from which gives them a negative self image no matter how well they are performing. It might not even occur to them they are doing a good job. Victims of abuse, for example.
Taking a second or two to say "good job" gives the person actual feedback. I'm not saying you should make a show, but job feedback is important.
[1] http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect
If you want to promote any kind of sense of ownership or pride, find something they did that you didn't ask them to do and tell them that you think it's awesome. (Assuming you actually think it's awesome.) That's it.
I'm completely against patronizing, but to not signal to your employees that you value their judgement, independence and skill is... just foolish.
I don't think the point is to replace compensation with pats-on-the-back, but rather, get in the habit of personally recognizing the positives. Too often it's only the negatives that are recognized, and though most of it is probably on the technical side of things ("hey, we found a bug you wrote that crashed prod"), there's still very little in the way of positive encouragement or reinforcement coming from a human.
Of course, some will respond better to it than others, but I think it's a worthy practice. Too often, especially in stressful atmospheres, only the negatives are spotlighted, and this can hurt morale over time.
I get paid a lot more as a consultant right now that I made as a fulltime employee but there is something missing in my current gig. It is the appreciation (not patronizing) that me being there makes a difference.
How many people have been led out the door protesting, "How can you fire me? Don't you know how much work I do around here?" Those people didn't have anyone in management saying, "Hey, you're doing a great job."
I never understood this advice. Not to sound arrogant, but I know I'm good.
That said I agree with the rest: telling someone they're great but not worth paying a decent salary sounds insulting.