Cash vs. Non-Cash Rewards and Incentives: Which Is the Better Motivator?

In the World of Incentives, It Pays to Go Cashless

The phrase “cash is king!” has been repeated enough in modern vernacular that it could qualify as a cliché. But while there may be some truth to this adage in dealing with areas like finance and real estate, it’s a poor philosophy when designing incentive programs.

Academic research shows that when trying to motivate desired behaviors, non-cash items — including trips, merchandise, event tickets and other exclusive privileges — make much better reward “carrots” than cash.

It may seem counterintuitive. Ask anyone which they would prefer: cash or a non-cash reward of the same value. The response is likely to be a resounding, “Show me the money!” However, when it comes to tapping into the emotions that make incentive programs work, the results are very different. In practice, businesses have noted that tangible, non-cash rewards do a better job of attracting and holding people’s interest, getting them excited about possibilities, and motivating them to act in a way that meets business objectives.

The theory is that, while cash is nice, and usually needed, the participant feels more “rewarded” when they receive something they have long wanted or may not have acquired otherwise. Think of being a kid, and getting an envelope of money for your birthday versus being taken to the toy store to pick out your present. Which would be more exciting? Furthermore, which approach creates more of a meaningful, positive, memorable experience?

It’s not a trivial issue. Reward offerings can make or break incentive program success. You need to understand what type of rewards will stimulate your unique participant group — and sustain their motivation over the life of their relationship with your organization.

An Enlightening Study on Cash and Non-cash Incentives

A Wichita State University study, published in the Journal of Economic Psychology, showed how emotion might play into the desire for a tangible alternative to cash. Researchers asked participants to choose whether they wanted cash, a high-definition television or a cruise (all options were worth the same amount). Nearly two-thirds of the respondents selected cash.

Yet the results changed when researchers asked participants how happy or satisfied they would be to receive a money incentive, or an HDTV or cruise (again, all of the same value). Consistently, the HDTV and cruise were selected over the bonus of cash. The scientists hypothesized that the thought of receiving a “gift” that the participants wouldn’t necessarily go out and buy themselves created more excitement and enjoyment. In other words, these items are seen as unexpected treats to indulge in.

However, if presented with a simple choice — cash or a tangible reward — without regard for emotion, the practical nature of cash is seen as a “wise” or “responsible,” if less-satisfying, choice, probably due to necessity (“I need to pay a bill,” or “I’m saving for a new car,” etc.).

Cashless Rewards as an Essential Survival Strategy

QIC’s John Newman, writing for Salesandmarketing.com, makes a strong case for the value of non-cash incentive programs as an effective long-term survival strategy in the ever-evolving workplace. As the Incentive Research Federation (IRF) – a private not-for-profit foundation that funds research studies and develops education serving all segments of the global incentive and recognition industry – has reported, companies that incorporate employee incentive and recognition programs as part of their compensation and engagement strategies have seen productivity increases of 22 percent.

Moreso, the Harvard Business Review reported that successful incentive and recognition strategies led to an average increase in revenue of 44 percent. These incentive programs are designed to improve employee engagement, because companies with high employee engagement experienced an average return on assets over 2-1/2 times higher than those with low engagement.

Why non-cash incentive programs for employees? They provide a way to invest in your workforce and have proven to be one of the most effective ways to thrive during challenging and changing times. For the rest of the story, check out John’s article: Incentives Are an Investment, Not a Cost.

Additional Non-cash Incentive Insights From the IRF

The IRF recently published findings from an annual study which examined and compared non-cash recognition and reward approaches among top performing firms in the manufacturing, financial services, and technology sectors.

IRF found that 100% of the respondents indicate their companies use non-cash incentives, beyond compensation, to a mix of salespersons, partners, and employees to motivate behavior. The goal of the study was to determine best practices which distinguish top-performing companies from others.

Companies were designated as “top performing” from a national cross-section of respondents from firms earning at least $100 million in revenue, in addition to other criteria.

For example, to qualify as “top performing,” a firm had to report strong overall performance, which included financial growth of more than 5% in revenue. Strong performance with customers and with employees was also a requirement, and reputation as a highly desirable place to work was also considered.

There is still a large gap between top performers and comparators, but both groups have grown in the percentage who say executives are strong supporters of reward and recognition as a competitive advantage. This growth is not insignificant – top performers from 80% to 94% and comparators from 44% to 65%.

Another key finding is the percentage of comparators who design programs with strong collaboration across multiple departments. For comparators, this increased from 51% to 65%. Top performers maintained an already strong majority at 78%.

Of all the measured increases from the previous year, participation among top performers was the highest, with the percentage describing participation as “excellent” increasing from 34% to 45%. Additionally, manager buy-in also increased significantly for top performers, from 42% last year to 64%.

Overall, top performers have a higher percentage of recognition program structures over comparators. During the current global pandemic, companies that have invested in strong recognition and reward initiatives are finding them to be vitally important to relationships with customers and employees. In the coming months, these programs will enhance efforts to maintain and strengthen those relationships even more. To review the entire IRF study, download it here.  The IRF also produced an infographic of the study, available here.

In another recent issue of The IRF Quarterly Academic Review editor Allan Schweyer had this to say in regards to the reward debate:

“Interest in the use of rewards and incentives has expanded; academic study in our field has grown tremendously in recent years, which in itself is an endorsement of the key role incentives and rewards continue to play in business – motivating employees and other stakeholders to greater engagement, higher productivity and better outcomes.”

The current issue studies cash vs. non-cash incentives to measure the benefits of hedonic versus utilitarian rewards; reward framing; the role of extrinsic rewards in driving intrinsic motivation; the conditions in which incentives encourage creativity and the effect of goal/reward choice and achievability on sales performance.

The increase in academic research has brought an increase in studying the role and impact of incentives and rewards relating to the intangible characteristics of organizations. Schweyer lists some of these variables as the strength of internal and external relationships, inclusion, trust, development, autonomy, and meaning. He goes on to say research continues to show that incentives, rewards, and recognition plays a pivotal role in generating and sustaining these characteristics – those that create a “21st century talent culture,” and which generate sustainable competitive advantage.

Download the academic review here. I found this issue to be especially interesting!

Priceless Business Evidence

Goodyear Tire demonstrated the value of non-cash versus cash during a sales incentive program that ran for six months in over 900 stores. The goal was to sell a specific type of tire. At half of the stores, employees had a chance to earn cash for every 12 tires sold. At the other stores, employees were offered merchandise rewards for every 12 tires sold. In the end, the stores working with non-cash incentives outsold the “cash incentive” stores by 46%. The non-cash program achieved a ROI of 31% compared to an ROI of –20% for the cash program. These results indicate how non-cash incentives for employees can positively impact the quest to achieve a goal.

Cash vs. Cashless Rewards: Articulating the Argument

The next time the subject comes up with your colleagues, here are some key points commonly made about the advantages of non-cash rewards over cash:

• While cash is useful, it’s not something that can be used to make an emotional connection. A dollar is a dollar, but to a Packers fan or a ski enthusiast, a trip to Lambeau Field or Vail is truly priceless. The emotional elements of non-cash rewards make these items seem to have a higher value than cash in the participant’s mind. As a result, non-cash is a more effective motivator.
• Cash is easily “lost in the shuffle” — it may get spent on bills or routine expenditures, with no long-lasting association to the program, the behavior that earned the reward or the company that sponsored it.
• Luxurious, non-cash rewards are palatable indulgences, whereas the participant may feel irresponsible or selfish spending a cash reward to acquire such luxuries. This makes the non-cash reward highly coveted and memorable.
• It is more socially acceptable (and interesting) to tell the story of how you earned a non-cash item. (You might talk about how you earned that beautiful wine decanter; you wouldn’t “brag” that you were given $150.) This makes the participant feel good about their achievements.
• Travel awards create memorable experiences that can be shared with loved ones. These types of rewards create a positive association with the sponsoring company (“We’re going on a dive trip courtesy of Acme Company!”)
• Cash can become an entitlement, whereas when someone has the opportunity to earn a non-cash reward, it tends to be perceived as an added bonus and specifically earned for a particular achievement.
• Loved ones and friends can join in the fun of non-cash rewards, which furthers the “positive PR” of the program beyond the participant base. It also elevates interest and motivation by participants who want to earn something that others can enjoy.

Contact QIC to learn more about the debate over cash versus non-cash incentives and the potential of online reward programs.