9 Ways to Tell When You Compensate and When You Reward


Everyone who manages people would love an answer to this question: “When do I compensate employees and when do I reward employees?

Most managers and HR professionals have debated this question at one time or another and quickly discovered that there isn’t a simple or all-encompassing answer.

There are times when cash compensation is the right approach and there are times when a non-cash reward such as merchandise, travel, a day off with pay, a team party or family picnic may be the answer.

Here are nine (9) factors to consider when deciding whether to focus only on cash compensation or when to add a non-cash award component to your employee total rewards plan.

Focus on cash compensation when:

1. Your employees are mostly lower wage workers who struggle to make ends meet and live paycheck-to-paycheck. These employees likely can’t afford to pay the additional taxes on a non-cash award and truly are motivated by money. Additional cash can mean being able to pay the rent.

2. You don’t have any specific behaviors or actions you want to call out to employees. The nature of the work is rote and no special “above and beyond” performance is needed or expected. All you expect is for employees to do is show up, complete the task and collect their pay.

3. Your workforce is mostly temporary, contract or seasonal employees and employee loyalty doesn’t matter to you. If you mostly hire short-term workers, then cash may be the right motivator to attract the best possible talent for a specific job or project.

4. Your program is structured so cash bonuses and cash rewards are easy to earn year after year. If your workers have come to depend on bonuses to make ends meet, then keeping employees satisfied may require you to maintain the cash payouts until you can ease off the existing program and introduce another.

Add non-cash reward opportunities when:

5. Your employees receive wages or salaries that ensure an adequate to high standard of living. Once basic needs are met, additional cash does not necessarily fulfill the need for job satisfaction. Non-cash awards become viewed as a special gift.

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6. You want employees to focus on key values or actions like innovation, process improvement and team work. Employees are more likely to become engaged and want to try new things when they believe their work is noticed and rewarded with a special item or event.

7. You want to retain top talent. Top talent is always in demand. Not feeling valued and not being recognized within the company is a key reason many employees quit. Tangible awards offer that sense of feeling valued and special.

8. You want to set standards of performance for other employees to emulate. Presenting non-cash rewards in a public forum is a great way to define “model” performance for everyone.

9. You want to focus attention on a specific situation for a short-time. If you need to drive sales of specific product or get employees to support a new process, product launch or system integration, for example, tangible rewards are viewed as a special gift for special performance. They do not become an expected event.

Every organization has unique compensation and rewards needs. Using these factors will help you make the right decisions to meet your employees’ needs.

For more than 25 years Tim Houlihan has been developing and delivering behaviorally-based marketing and sales solutions. Along the way, it has been his ongoing curiosity of human behavior that has led to those solutions. As the Vice President of Reward Systems at BIW, Houlihan is responsible for leading the development of innovative reward systems based on principles found in behavioral economics.


2 Comments on “9 Ways to Tell When You Compensate and When You Reward

  1. Good article, but be careful with some of these assumptions, especially as the workforce becomes more diverse (see suggestion #8):

    8. You want to set standards of performance for other employees to emulate. Presenting non-cash rewards in a public forum is a great way to define “model” performance for everyone.

    Globally, some cultures frown upon individual recognition and calling attention to one person is embarassing. Even in societies that focus on rugged individualism–like the US–there are individuals who would rather die than be put in front of a group.

    Bottom line, know your workforce and be sensitive to their individual preferences. Leaders with the ability to tailor rewards and recognition to each member of the team will have the most success!

    1. I agree with you 100%! I had the privilege of having a very intelligent and excitable professor in my undergrad who came from Japan and taught Multicultural Diversity Management. Her ability to compare and contrast Japan and the US was absolutely eye-opening and really got me to realize that one size doesn’t fit all, even within one country.
      Like you said, I know in Japan they generally promote the team or society rather than an individual and that this type of reward wouldn’t be fitting- heck, even I myself don’t enjoy the limelight! Give me a quick ‘good job’, a little something in my paycheck or gift on my desk and I’m happy as can be. What I want is recognition, but I don’t want to be put on display.

      I agree overall with this list and it is a good generalization of what to give employees, you just have to make sure you know your employees and find what works for them is the bottom line.

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