In the employee satisfaction studies we have done, we've never found a firm with low employee recognition scores and high employee satisfaction scores. There is some debate in the HR community as to whether it is better to reward employees with more money, or in non-monetary ways. These two methods need not be mutually exclusive.
Compensation is important.
However, the most prevalent complaint we have observed about compensation is the lack of relationship between pay and performance. If your organization pays its employees market rates, and grants larger pay increases to top-performers, an employee recognition program should be able to boost morale. A recognition program does not have to be expensive. The structure of a recognition program is limited only by your imagination. To be fair, a program must not favor one employee over another, merely because of his position within the organization, or his relationship with his supervisor.