Why Happiness Matters

Right after I published my post on favourite podcasts, The Happiness Lab released an episode about why happiness matters. The takeaway? Companies with happy employees are more profitable—and ideally, their employees reap the benefits, too.

But what does “happy employees” mean?

First, it starts with fair pay—enough to do more than just survive. If employees are juggling multiple jobs just to make ends meet, they’re sleep-deprived and far from “happy.” Let’s make sure that foundational need is met first.

After meeting basic needs, more money doesn’t necessarily mean more happiness. It’s not a straight line. Like pancakes at breakfast: the first one is great, but the fifth? Not so much. This diminishing return is especially true for jobs requiring creativity or problem-solving, where excessive financial incentives can actually hinder performance.

Dr. Laurie Santos highlights three key indicators of happiness at work:

• Does what I do matter to the company?
• Do I matter to the company?
• Do I have a best friend at work?

These align closely with the principles of employee engagement identified by Kouzes & Posner years ago:

• Can I come to work every day and do my best?
• Do I have the tools and training I need?
• Does somebody at work care about me?

Humans are social creatures. Feeling valued and connected is as crucial as fair pay.

If your workplace isn’t fostering “yes” answers to these questions, employees won’t stick around—especially the good ones, who always have options. And turnover is costly: replacing an entry-level worker can cost 30% of their annual salary, while executive turnover can exceed 200%.

So What?

To retain and engage employees:

• Pair fair pay with non-monetary rewards like opportunities for growth, meaningful recognition, and autonomy.
• Offer moderate financial incentives that motivate without creating pressure.
• Create an environment where creativity, mastery, and purpose are valued over immediate outputs.

Combining intrinsic motivators (autonomy, purpose, mastery) with extrinsic rewards (fair pay, recognition) makes for happy, engaged, productive employees.

Further Reading

• Edward Deci and Richard Ryan’s Self-Determination Theory
• Dan Ariely and colleagues, “Large Stakes and Big Mistakes” (2009)
• The Yerkes-Dodson Law