Cash or Non-Cash Rewards?

There is a longstanding debate as to whether people are more motivated by financial or non-monetary incentives.  The obvious answer is that not everyone can be incented the same thing way and not every situation warrants the same incentive.  This may be an obvious answer but it isn’t a very useful one because it doesn’t give any guidance to managers.

It’s tempting to just rely on money.  It’s the simplest option and most managers assume that employees will buy what they want.  Standard economic theory suggests that cash is always best option due to time value. Finally, multiple studies show that people normally state a preference for cash.  Why not just give them what they want?

Unfortunately, it’s not that straightforward.  In a 2004 study conducted at the University of Chicago by Scott Jeffrey, an overwhelming 78% of staff members said that they would rather receive a financial incentive as motivation to play a word game. However, performance improved by 38.6% when a non-cash incentive was used compared to 14.6% for a cash reward.  Their performance didn’t match their preference.

While it may well be a self-serving result, a similar conclusion can be drawn from a February 2000 survey by American Express Incentive Services (AEIS) in which 32% of the respondents admitted that cash bonuses did not improve their performance. Proponents of non-cash rewards, like AEIS, remind us that financial incentives are intangible, difficult to brag about, and are likely to be used for everyday items rather than special rewards.  Many people point to a seminal 1999 survey by Wirthlin Worldwide which showed that more than 60% of responded didn’t use the financial incentive for anything memorable. (Note: Anyone have the original study?  All I can find is this graph.)

I recommend non-cash incentives for relatively short term projects that cross normal workgroups.  I find they work particularly well to foster healthy internal competition (region/division of the year), to memorialize important events (timely shipment of a new product), or to encourage specific behavior (parking spot for employee of the month). I still have various plaques/clocks/trophies in my office even though all of them are more than 10 years old.  Clearly I value the memories.

But let’s not be too hasty to dismiss cash.  My own experience is that it has the broadcast applicability across the most situations and the most cultures.  Cash can be used to focus attention on specific tasks, attitudes or outcomes. But be careful – an extra few drachma in the weekly paycheck is unlikely to have the intended impact.  It’s best to reward the cash outside the normal process so as to highlight cause and effect.

When it comes to rewarding behavior, cash is still king.

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2 Responses to Cash or Non-Cash Rewards?

  1. Robert E says:

    I am surprised you didn’t talk about the “Becher buck” you used at a previous company.

    Unlike a game show where the reward is known up front and the contestants are trying to win the money, this could almost be called a “random act of reward” because it wasn’t a contest or a game.

    I remember it being very cool and how it wasn’t so much the monetary value of the reward as that little boost through recognition and appreciation.

    When thinking about cash versus non-cash rewards, I have felt very rewarded by some of my managers that have given me their time and attention.

    When they have taken time to provide their feedback, observations and geniune concern with my issues and well-being, I value that more than any monetary bonus.

  2. monkchips says:

    great comment on a recent post. consider a single person company. is money really the only thing they’d optimise for? rational agents as purely economic actors = horseshit

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