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Non Cash vs. Cash Incentives

The following is a summary of a collection of articles pertaining to non-cash incentives vs. cash incentives. The excerpts below display the relevant points to this topic. Full versions of these articles can be provided upon request.

BEYOND MONEY

Ken Blanchard states in his article, Beyond Money: How to Win and Keep Top Performers, “As an incentive for above-and beyond effort, cash is hopelessly ineffective; the reason is that cash turns the incentive into a deal” (pg. 7).

Blanchard’s article also poses the question: “When should incentives be used?” To answer this question, he highlights a case study:

A meta-analysis study by Stolovitch, Clark, and Condly found that incentive programs can improve performance. The study revealed that if selected, implemented, and monitored correctly, incentive programs with monetary (cash bonus) or nonmonetary (tangible items, trips, etc.) awards increase performance by an average of 25 percent. Team incentives can increase performance by as much as 44 percent. The study also found that incentive programs can enhance interest in work. When asked to persist toward a goal, people increase their performance by 27 percent when motivated by incentive programs. When incentive programs are used to encourage “thinking smarter,” performance increases by 26 percent. Both executives and employees say they highly value incentive programs (7).

Furthermore, Ken Blanchard’s Beyond Money explains that there are many types of incentive programs.

For example, a point-based incentive program can drive employee behavior in positive ways. The points work similar to frequent flyer miles. A point-based program allows employees to work toward a tangible goal of their choice rather than a cash bonus (7).

Blanchard uses a large automobile manufacturer as an example of a point-based program. This particular company implemented “a VIP points program whereby employees earn points for money-saving suggestions and presentations. The company received more than 10,000 suggestions in one year, resulting in $5 million in savings” (8).

THE BENEFITS OF TANGIBLE NON-MONETARY INCENTIVES

An article written by Dr. Scott Jeffrey, a Ph.D. recipient in Managerial and Organizational Behavior at the University of Chicago, also discusses non-cash incentives. This article, entitled The Benefits of Tangible Non-Monetary Incentives, concludes that, “non-cash incentives have Evaluability, meaning they capitalize on effective reactions to the award, and they increase the utility value of the award and its significance” (pg. 2). He also states that non-cash incentives have justifiability, which means they allow the participant to justify the consumption of the award and the incentive motivates them to achieve and be awarded with something more difficult to obtain through purchase. Dr. Jeffrey also talks about non-cash incentives as social reinforcement and mentions that these incentives are more socially acceptable than cash incentives (3).

RIGHT ANSWER, WRONG QUESTIONS

Dr. Scott Jeffrey further discusses this topic in another article, Right Answer, Wrong Questions, where he shares a study conducted at the University of Chicago.

The study found that while most people stated a strong preference for cash, their performance was markedly better when they were in pursuit of the non-cash incentive. Those participants working toward a cash incentive boosted their performance by 14.6 percent over those who did not receive any incentive for performance. This is a nice uplift, one that many companies would gladly invest in to gain that level of performance improvement. However, those who were working toward a non-cash incentive improved by 38.6 percent relative to the no-incentive condition, a significantly better improvement than that created by the cash incentive. For the same amount of money, a non-cash incentive created more than twice the performance improvement (pg. 2).

CASH VS. TANGIBLE INCENTIVE PROGRAM REWARDS

Loyaltyworks, a company that provides incentive programs, describes the difference between incentives in the article Cash vs. Tangible Incentive Program Rewards – What Works Best? Loyaltyworks explains that the effectiveness of tangible incentives is due to the fact that they capture and hold the interest of people, “generating excitement and motivation, and driving program results towards business objectives” (pg. 1).

To support their claims, Loyaltyworks shares a success story from Goodyear regarding a 6 month sales incentive program they implemented in over 900 stores.

In half of the stores, employees were offered a cash incentive for every 12 tires of a specific type sold. Employees in the other stores were offered merchandise rewards worth the equivalent amount. At the end of 6 months, the non-cash stores outpaced the cash stores by 46%. The ROI for the non-cash program was 31% and the cash program ROI was under 20% (2).

Loyaltyworks’ article mentions that cash incentives often become psychologically mixed in with income, which is typically spent on necessities and practical expenses such as bills. This mental categorization often disassociates the sponsor from the award. For this reason, it has little emotional value and/or lasting effect on recipients. A tangible reward serves as a reminder of the recipient’s achievements as something that was earned and therefore ties the recipient to their sponsor emotionally.

THE STATE OF TANGIBLE INCENTIVE RESEARCH

Much like the other articles, The State of Tangible Incentive Research: the Use of Tangible Incentives by the Incentive Research Foundation uses case studies to prove a point. This article explains that many executives believe that cash is preferred by employees and is therefore more impactful; however it aims to prove that this notion is incorrect.

Companies unsatisfied with performance and that rely on cash alone may be interested in a study conducted by Shaffer and Arkes (2009) that found when people make a hypothetical choice between cash and non-cash incentives, cash is indeed preferred by employees.  However—and here is the hook—when it’s no longer hypothetical, meaning when an award is identified,  employees actually performed better in pursuit of it, even when the award was of equal value to the cash alternative (pg. 2).

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