Engaged WorkforcePerformance Management & Rewards

The Baker’s Dozen—Recognition Feature: Ending the Great Debate

Why the best managed companies are using non-cash rewards to motivate, retain, and engage employees. Studies support workers are more engaged when the prize is other than money.

by Edward L. Ford, Vice President of Total Recognition, Michael C. Fina

There is perhaps no subject more debated by incentive program providers and their clients than the value of tangible, non-cash incentives versus cash.

Because companies routinely tout that people are their greatest asset, it’s imperative in today’s competitive market that they back up this mantra by rewarding their employees correctly. This encourages higher performance and promotes valued company behaviors.   

Unfortunately, during my 25 years of consulting in the employee recognition industry, I have found that fewer than 20 percent of organizations truly walk the walk. According to our research, the best-managed companies are using non-cash awards and incentives to keep employees engaged. This article will examine why a tangible award program is more effective than a cash program.

WHY REWARD EMPLOYEES?
Employee recognition is a communication tool that allows companies to reinforce and reward behaviors that are reflective of the organization’s core values and objectives. Recognition and retention programs also instill a climate of trust within the workforce.     

Companies must remember the people they employ are the foundation for the way the organization moves, grows, and is perceived in the marketplace. Companies that prioritize employee recognition demonstrate their interest in fostering a positive, productive, and innovative culture among their employees. Workers who feel appreciated are more positive about themselves and the contributions they make to the company’s success. Because organizations must retain employees to be successful, they need to have an effective recognition program in place. It’s critical to choose the correct program.

Companies continue to reward their employees with cash awards due to convenience. Many companies don’t want to take the time or effort to design a world-class recognition program. These companies are opting for the “no hassle” form of recognition. It takes work to do things differently and create a true culture of recognition.

The second perceived benefit of implementing cash programs stems from employee surveys. Many companies protect their outdated cash programs by stating that they have surveyed their employees, and they say that they want more cash. Most employees will respond likewise. But companies may not be asking the question the right way.

In 2004, a study conducted at the University of Chicago1 concluded that “What employees say they want and what they actually work hardest to receive do not always match up.”

In the study, staff members came to a behavioral laboratory and engaged in a word game in pursuit of an incentive. One group of employees was given a cash reward in exchange for good performance. A second group had the opportunity to earn non-cash rewards of varying amounts, depending on their performance. These rewards were based on market value so that the comparison was fair.

After performing their task, the group in pursuit of the non-cash incentive was asked about their level of agreement with the following statement: “I would prefer to receive the cash value of the prize rather than the prize itself.” An overwhelming majority, 78 percent, said that they would rather receive the money.

However, the study found that while most people stated a strong preference for cash, their performance was noticeably better when they were in pursuit of the non-cash incentive. Performance improved by 14.6 percent when a cash reward was offered, compared with a dramatic increase in performance of 38.6 percent when a non-cash incentive was used (see Fig. 1).

This new evidence suggests that if companies ask their employees, “What do you want?” they will respond with, “more cash.” But, what companies should be asking is, “What will motivate, retain, and truly engage my workforce?” 

WHY CASH IS LESS EFFECTIVE 
Although employees prefer cash incentives, statistics say they will not work harder to receive them. The reasons being, cash rewards are typically thought of as compensation, therefore employees use this award on necessities. According to a survey conducted in 1999 by Wirthlin Worldwide, of 1,010 people who were asked how they spent their last cash reward, cash incentive, or cash bonus, 29 percent said they spent their awards on bills. That is considerably higher than the only nine percent that used their cash award on a “special personal treat.” (see Fig. 2)

I’ve asked clients why they chose a non-cash recognition program. An overwhelming majority of respondents note that cash does not reinforce brand loyalty.

Also, most employees do not remember what they spent the money on, therefore, by giving a cash award you lose the impact of recognition. Here are additional responses:

  • Cash is a commodity, so it cannot differentiate. It’s the intangibles that distinguish and make a difference.
  • Cash programs always end up becoming entitlements. Administrators like to have the flexibility to “refresh” merchandise items, thus keeping their programs new and exciting.
  • Administrators have found that they get more attention and excitement out of non-cash programs.
  • Employees are more willing to brag about their non-cash rewards rather than money that is perceived to be a part of compensation.
  • Cash has no trophy value.

Taxes are another major factor that should sway most companies away from giving cash awards. Because employee achievement awards are items of tangible personal property that an employer gives to an employee for safety achievement or length of service, if certain requirements are met, these awards have advantageous tax results for both the employer and the employee. Cash awards, conversely, are taxed as income, which diminishes its value to the recipient.

So the next time you consider which will more effectively motivate employees, consider a non-cash program. It may have a more lasting impact than plain cash incentives.

1”Right Answer, Wrong Questions” by Scott Jeffrey, PHD.

Tags: Engaged Workforce, Performance Management & Rewards

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