Cashing Out

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

Since companies routinely proclaim that people are their greatest asset, it’s imperative in today’s competitive market that they stand up to this mantra by rewarding their employees correctly. This should encourage higher performance and promote valued company behaviors.

Unfortunately, during my 25 years of consulting in the employee recognition industry, I have found that less than 20 percent of organizations truly walk the walk. What is the walk? According to our research, the best-managed companies are using noncash rewards and incentives to keep employees engaged. Is a tangible reward program more effective than a cash program? Absolutely. Now, here’s why.

Why Effective Incentives Matter

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

Companies must remember that 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. Employees who feel appreciated are more positive about themselves and the contributions they make to the company’s success. Since companies must retain their employees to be successful, they need to have an effective recognition program in place. It’s critical for companies to choose the correct program.

Still Rewarding with Cash?

Despite evidence suggesting that cash is not the most effective recognition tool, many companies continue to reward their employees this way. Why? Simply put, 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 Many companies protect their outdated cash programs by stating that they have surveyed their employees and they say that they want more cash.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.
What employees say they want and what they actually work hardest to receive do not always match up, according to a 2004 study conducted at the University of Chicago by Scott Jeffrey, who holds a doctorate in managerial and organizational behavior.

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 noncash 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 that worked in pursuit of the noncash incentive was asked 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 noncash incentive. Performance improved by 14.6 percent when a cash reward was offered, compared to a dramatic increase in performance of 38.6 percent when a noncash incentive was used.

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 doesn’t Cash Work?

Although employees prefer cash incentives, statistics say they will not work harder to receive them. The reason is that cash rewards are typically thought of as compensation; therefore, employees use the money 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 rewards on “bills.” That is considerably higher than the mere 9 percent who used their cash reward on a “special personal treat.”

The Rewards of Noncash Rewards

I’ve asked clients why they chose a noncash 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 reward 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 noncash programs.

• Employees are more willing to brag about their noncash rewards rather than money that is perceived to be a part of compensation.

• Cash has no trophy value.

Another Incentive — Tax Advantages

Taxes are another major factor that should sway most companies away from giving cash rewards. Since 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 rewards have advantageous tax results for both the employer and the employee. Cash rewards, conversely, are taxed as income, which diminishes their value to the recipient.