There is perhaps no subject debated more frequently by incentive program providers and their clients than the value of tangible, noncash incentives versus cash. Because companies routinely say people are their greatest asset, it’s imperative n 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, on average, fewer than 20 percent of organizations truly walk the talk. According to research from employee recognition company Michael C. Fina, the best-managed companies use noncash awards and incentives to keep employees engaged.
Why is it Critical to Effectively Reward Employees?
Employee recognition is a communication tool that allows companies to reinforce and reward behaviors that reflect 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 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. Because companies must retain their employees to be successful, they need to have an effective recognition program. It’s critical for companies to choose the correct program.
Why Not Cash?
Companies continue to reward their employees with cash awards because of convenience. In addition, they perceive cash as the incentive of choice because of employee surveys. Many companies have surveyed their employees and have determined they want more cash. Companies might not be asking the question the right way, however.
In the 2004 University of Chicago study, “Right Answer, Wrong Questions,” researcher Scott Jeffrey, Ph.D., found, “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 noncash rewards of varying amounts, depending on its performance. These rewards were based on market value so that the comparison was fair.
After performing their task, the group members who worked in pursuit of the noncash incentive was asked their level of agreement with the statement, “I would prefer to receive the cash value of the prize rather than the prize itself.”
A majority, 78 percent, said they would rather receive the money.
The study, however, found that although 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 with an increase in performance of 38.6 percent when a noncash incentive was used.
This evidence suggests that if companies ask their employees, “What do you want?” they will respond, “More cash.” But what companies should be asking is, “What will motivate, retain and truly engage my workforce?”
Why Won’t Employees Work Harder for Cash Incentives?
Although employees prefer cash incentives, statistics say they will not work harder to receive them. Cash rewards typically are thought of as compensation — employees use this award on necessities. According to a 1999 Wirthlin Worldwide survey, 1,010 people were asked how they spent their last cash reward, cash incentive or cash bonus. Twenty-nine percent said they spent it on bills, compared with 9 percent who used their cash award on a “special personal treat.”
Tax Time: The Value of Noncash Rewards
Taxes are a major factor that sways many companies away from giving cash awards. Because employee achievement awards are items of tangible personal property, 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 their value to the recipient.
When Michael C. Fina asked companies why they chose a noncash recognition program, an overwhelming majority said cash does not reinforce brand loyalty. Also, most employees do not remember on what they spent the money — 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 they get more attention and excitement out of noncash programs.
• Employees are more willing to brag about their noncash rewards rather than money, which is perceived to be a part of compensation.
• Cash has no trophy value.