When It Comes to Workplace Incentives, Just Show Me The Money

A couple of weeks ago, I was listening to the HR Happy Hour Internet radio show and the subject drew my attention. It was about rewards, motivation and incentives and how they best operated in the workplace.

Paul Hebert and Trish McFarlane were co-hosting the show and I thought I would call in about the question I always have about incentive programs: Why don’t we just use cash as the incentive of choice?

The problem I always have with incentive programs is that the incentive is always some sort of hat with a company logo, an iPod, a gift card, a trip or some other non-cash reward. Those are all great as long as I want any of those things (and I generally don’t unless the trip is all expenses paid to Mexico with my wife). But what if I don’t want any of those things?

The “You Don’t Want Cash” argument

Paul Hebert (whose work I greatly respect) told me I don’t really want cash. Or that maybe I think I want cash but it isn’t in my best interest. Maybe I can get attached to cash too easily, I can start to become dependent on that reward or that it becomes an entitlement.

Clark Griswold (played by Chevy Chase) made a case for the cash bonus in National Lampoon's Christmas Vacation.
Clark Griswold (played by Chevy Chase) made a case for the cash bonus in National Lampoon's Christmas Vacation.

I can take that argument at face value for many situations. The entire plot line of National Lampoon’s Christmas Vacation was based on the fact that Clark Griswold felt so entitled and attached to his bonus that he made a big down payment on a pool. When that bonus turned out to be some non-cash reward, his reaction was less than thrilled.

I’ve also seen commissioned sales people come off of sales highs and crash. Doubling their paycheck and then dropping to less than their usual monthly take home amount in a matter of weeks isn’t pretty. All that money they felt they could roll in was now zapped. It may have been a powerful motivator, but it wasn’t one that I wanted.

Show me the money

That being said, when we’re talking about incentives we aren’t typically talking about large amounts of money here (and nobody is going to push to drop yearly bonuses or commissions). I got an iPod one time, which was about $250 retail. Even if I got that as cash, I wouldn’t be changing my lifestyle over it. And I already had an iPod (a better one) so I ended up selling it on eBay for cash. I hope I didn’t break any rules doing that.

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With many of the rewards programs I’ve seen, they’ve turned to points for rewards which can be used for things like iPods, company apparel, or gift cards to places like Amazon.com. Perhaps this may be one of those generational things, but having an Amazon gift card is exactly like having cash in my mind. In fact, I so rarely carry cash for anything (except on trips) that I typically deposit money into my bank account and use my card for everything else.

Truly, I don’t need any more corporate apparel (I’m covered for life), and I prefer to purchase electronic gizmos on my own (but if anybody has a spare MacBook Pro…ah, never mind). If you want to show your appreciation for my work besides an always appreciated pat on the back, give me some cash.

Making cash an acceptable reward

Of course, some managers and HR pros are always going to heed these warnings about psychological attachment, entitlement and the like. So how can we tailor a cash incentive program that takes these things into consideration? Here are my suggestions:

  1. Differentiate the rewards. Give different amounts every time so people don’t feel like they are getting the same thing every time.
  2. Don’t give rewards at the same time. Random times could help take the entitlement factor out of the equation completely.
  3. Don’t give major rewards. Set a limit, something like 10 percent of pre-tax earnings as the maximum reward you’d want to give out at one time.

What are your thoughts on this? Do you want cash or do you see too many downsides to offer it?

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37 Comments on “When It Comes to Workplace Incentives, Just Show Me The Money

  1. You are 100% correct. Cash is the best incentive. As a store manager for nearly 20 years, I tried everything and the best motivator was simple cash. You are also correct about your three suggestions making cash and acceptable reward.

    Great post!

  2. In the past, my answer would be cash, definitely. But over the last few years my preference has changed and it now depends on the dollar amount. I think 1% of annual pre-tax earnings is the line…above which I’d prefer the cash, and below which a well-picked gift has more value.

  3. I loved this post! Along similar lines, I’m Generation Y and I’m constantly reading articles that explain how Gen Y prefers workplace flexibility over salary base. While we do enjoy flexibility, we still care deeply about cash (I can assure you). The same holds true for incentives. It’s nice to receive a non-cash reward, but is it as useful as cash? Probably not. With cash, I can pay bills. And, to me, that’s the best present any employer could ever give.

    1. Hard to categorize wide swaths of people. I like working from home but flexibility isn’t an absolute necessity. Neither are large sums of money. There’s a balance there though.

  4. This is so spot on. I don’t know why people are so against cash rewards. The three suggestions that you give to remove the entitlement factor are excellent. I have always felt that even individuals who are not necessarily motivated by money are even better off with cash incentives. It shows appreciation in a way that works for the individual. There are always the people who bring up tax issues, but a good company will eat the tax, gross up the amount and add it on as earnings at the end of the year while explaining it to employees in a way that is easy to understand.

  5. I think the best incentive is time-off. I would rather take a vacation than to have money I can’t spend on one.

    1. I love time off too. The hard part is always coordinating with my wife (who has less time off and flexibility than me). At this point, I like getting green but I might like time off later.

  6. Hi Lance,

    Nice post – I think you bring up a great point. At Virgin HealthMiles, we provide workplace employee health and wellness programs and have seen significant, sustained shifts in long-term healthy behaviors in our members and believe that incentives are a key driver. The incentives do vary by company and ‘cash’ can take many forms, including premium discounts, days off, gift cards and cold, hard cash.

    In a recent Workforce Management survey nearly 70% of the respondents agreed that incentives are a powerful motivator and effective in getting employees to make healthy behavior changes. In our program, we use a Pay-for-Prevention™ approach that rewards personal responsibility for healthy habits and aligns company interests with the employees to drive down lifestyle-related health care and productivity costs. Incentives balance the ‘behavioral economics’ of the choices we make today, (perceived costs like taking the time for exercise, skipping desert again today,) with the long-term benefits of being healthy (better quality of life, less of my money going to healthcare.) If the incentive is not motivating or does not directly tie in to the behavior the company is trying to promote, it’s all but useless. I think cash is a powerful motivator and organizations should use it as an incentive as long as it reinforces the behavior change they are trying to achieve.

  7. Lance,
    I completely agree. Here at RewardsNation, we let our clients decide what is included in their reward options and where they choose to offer a payroll redemption option, the majority of employees still choose merchandise as a way to spoil themselves or loved ones. Ultimately, having the option to choose what suits you most with each opportunity is what’s most appreciated.

  8. I agree that cash is King…and time off with pay is the Queen….after that it becomes very personalized and thus a little difficult to manage and measure.
    Mary

  9. Ah, Lance. I’m on Paul’s side — also someone I respect greatly. The problems you outline with typical reward programs are quite accurate and real — limited choice to, um, stuff you don’t really want. But your cash options don’t address the bottom line challenge — most cash awards are delivered through payroll. Most people don’t even realize they’ve received a cash award — it slips right into the paycheck and right out again for monthly bills and “i-don’t-remember” (as confirmed by multiple surveys).

    A much better option is rewards that give the ultimate flexibility of cash, but in a format that makes sure the reward is truly rewarding and memorable — a nearly limitless choice of gift cards/certificates for everything from Amazon, the local department or home improvement store, restaurants, vacations, cruises, Disney — heck, fly a jet plane or go the spa if you want. Even give your reward to the charity of your choice. The key is — you get to pick the gift card(s) from thousands of options (not a dozen or two). But at least you’ll know you received a mark of the esteem your company holds in you.

    1. That seems to be more of an artificial barrier rather than a real one. When I did them, I did a separate check (or pulled cash from the bank) and grossed up the amount to pay taxes in our payroll software. It seems more like an issue about dealing with internal logistics and perhaps software limitations than an actual problem with cash rewards.

  10. You knew I’d weigh in right…

    Here’s the point. I didn’t say you really don’t want cash. What I said is that the research shows that cash doesn’t drive the same level of behavior change in the long run. Whether you “think” it does or it doesn’t is your opinion. The facts are different. When cash and non-cash (not just points/cards) are studied more behavior change and performance improvement is realized when non-cash is used. The book Predictably Irrational actually showed that people perform worse when simply mentioning the dollar value of a non-cash award – in their experiment they said “50 cent snickers bar” and performance dropped.

    We are notoriously irrational. Rationally, I get the argument. Reality shows a different outcome.

    Now the real issue is that the person paying out the incentive is the company. They have a responsibility to do this right for the company and for the employee – and since they are paying the bills there are many reasons to use non-cash over cash.

    The key here is to balance what you want and what they want.

    Non-cash can be discontinued and there is no impact to your standard of living. As you’ve mentioned… big cash awards become entitlements and that isn’t in the best interest of the company (nor in your best interest – regardless of someone saying it won’t. It will.)

    From an engagement standpoint the company does NOT want a transactional relationship (nor do you really) – engagement isn’t transactional – it is social and emotional. Cash creates a quid pro quo in no uncertain terms. When faced with the incentive of $1000 and the work – you naturally do the mental math and make a decision on whether to do it or not. With non-cash it is harder to do the math. If all a company uses is cash incentives for employees they create a mercenary and transactional relationship. That isn’t good for the employee or the company in the long run.

    There is also a well-known issue of “income adjustment” – we all have a magic number that is our level of income we start to get accustomed to – any additional cash above that is less valuable than what it took to get us to that level.

    In other words – we stop reaching at a certain cash level. It is well documented that sales people with unlimited income potential start to throttle back their efforts. If cash were as powerful as you say – then they should be laying exhausted on the conference room floor every Friday – but they’re not. Cash has a limit of effectiveness.

    In the end – cash does influence your behavior. So does none cash. The bottom line is to balance those two types of incentive so that you as an employee enjoy a standard of living your proud of and is reflective of the value you provide AND the company can influence your behavior in a way that establishes a social/emotional connection without become transactional.

    If you’ve ever worked at a car dealership – or in a boiler room – cash ain’t all it’s cracked up to be.

    1. I enjoyed this reply more than the article (no offense). It’s definitely a tricky thing, and trying to come up with a rule for it is recipe for disaster. Sure, everyone appreciates cash. But there are times when something else is called for: an extra day off, recognition in front of other staff or clients, or even a little perk like a gift card from an employee’s favorite lunch or coffee place. If you are lucky enough to know your staff, you can give them things they will appreciate–and yes, that might be cash. 🙂

      1. No offense taken. Paul is a nice guy and really smart.

        And many incentive programs will agree with you up until you say that one of the things they might like would be cash. I don’t disagree that another method of motivation might be better in the right circumstance (including non-monetary atta boys), but taking cash off the table as a reward is just as silly as taking any other motivational tool off the board. I simply advocate dropping the stigma attached to it and use it in an effective way.

        1. Agree 100% – cash is an acceptable and useful tool in the incentive mix. A blunt one, but a tool none the less and it needs to be part of the mix.

    2. I won’t question the legitimacy of the studies. I’m sure they are fine. I do question how we make decisions based on them though.

      Let’s take another human behavior as an example such as quitting smoking (since it is so well studied). We’ve heard that it takes an average of four to five attempts to actually quit smoking. That’s not debatable. If you’re the smoker trying to quit though, it’s not really that important how many times it takes the average person to quit smoking but how many times it takes you to quit smoking.

      While we know it’s human nature to relapse into habits (any habits really), we also know that there are people who quit cold the first time and never go back to smoking. And there are some people who try dozens of times but can’t kick it.

      If you we’re to build an incentive program based around quitting smoking, would you force everyone to go through the cessation process 4-5 times even though you knew some would get done early while others would relapse? Most of the solutions I’ve seen in the market are custom tailored to the individual, their goals and what is going to bring them the most success. Making a decision based on how long it takes people to quit would be a major mistake.

      While I’m a fan of Dan Ariely’s work, I also want to be careful about the decisions we make based on any research. There is a level of human nuance and variability in any human study, especially when we’re talking about explaining (or exploiting) human motivation and behavior.

      In short, I believe you should customize your incentives and rewards because your employees are all motivated differently. Even if the people who are motivated by or value cash are in the minority, I think companies should be thoughtful enough to realize that it’s a minority worth catering to.

      1. Absolutely, freaking agree. Incentives are individual in nature. No doubt. I’ve often argued against taking these studies as gospel. But… (and I like big buts) – the key here is how difficult it is to individualize incentives when you’ve got a huge audience. That is one of the reasons I push so hard to train management on how best to apply incentives. The closer I apply the appropriate incentive to the individual – the more effective it becomes. I totally agree with you.

        My only point was that in total – using cash as an overall approach (and using non-cash in the same way) is a bad idea. I’d go so far as to say – using cash as your predominate incentive tool is more damaging than not.

        But you’re on the money (so to speak) that some folks are cash motivated. But again – if I’m the sponsoring company – I’d choose non-cash before I’d install a long-term, high paying cash incentive. The long-term damage would would be less. That’s just my opinion based on 20 years experience – no study I know of has looked at this issue over time…

        Great discussion Lance – one I have a lot with clients.

        1. The logistics argument is a fair argument though I don’t know if it is one that will stand much longer. Think about the leaps and bounds in rewards and incentives technologies since you’ve been in the market (whether it be logistics, tracking or reporting). Not that technology is going to figure out what works and what motivates people the best but it could help human analyze results and do the logistical footwork required.

          Glad you could comment. Been sitting on the topic for a while.

          1. Technologically it is possible… but since we’re dealing with humans …. not probable. Most folks default to the path of least resistance… another reason that cash is used incorrectly.

          2. Gentlemen, I really enjoyed reading the discussion that this article had created. I’m a junior HR professional and while I respect and value Mr Haun’s point of view, please pardon me weighing in on Paul’s side of the argument, the Dan Pink one (http://goo.gl/o5kO). I would like to point out that cash is a very good incentive to consider with sales staff. However, please do tread lightly and remember that there are many factors to consider when administering rewards.

            As a general statement, what really motivates people is up to them. Cash is not king and far from it, especially with the new and coming generation (Gen Ys). Since we make career choices based on what we’re passionate about. Like Mr. Hebert said, every one has an income threshold, beyond which cash rewards are pointless. This is very relevant, especially when dealing with mid to upper level positions within an organization.  At least I can say that with 100% certainty for myself. If an employer were to take the time to figure out what I personally like, being given a small amounted gift card to an electronics store would tell me two things:

            1) I am not another number on this EE roster.
            2) They actually took the time to get me something that I care about.

            Dabbling with cash as an incentive is a two way street, especially for front line workers making close to minimum wage; you get the temporary boost in performance, but no matter how long that “high” lasts, you will get the withdrawal phase. It’s important to remember that you’re setting a precedented bar for yourself as an employer with your incentives. If you give cash and try to refrain from doing so the next time you try to reward, be ready to deal with the repercussions.

            Respectfully yours,Sam K.

          3. Lance – the cool thing is technology has already figured out, through applied statistical models, how people are motivated. People tell the technology about themselves and the tech does the math. Good discussion!

  11. This biggest problem with cash as an incentive, is that it contributes almost nothing to employee engagement.

    This is one of the reasons that credit card reward point schemes prefer to give out ‘things’ rather than cash of the same value. ‘Things’ make you value the scheme, cash doesn’t.

    At work, you will always remember that holiday that the office sent you on. You will never be as thankful for the same value in cash that you used to pay bills.

    While lots of people argue for cash as an incentive, i’ve never seen a study that shows improved performance for a cash reward. Most of the best sale people i have known, are great at what they do because they love their jobs, not because of commission payments.

    Would they perform as strongly on a fixed salary? I don’t know. Whenever a stagnant sales team gets new targets with incentives, and their performance improves – it the improvement because of the incentives, or because someone is paying attention to, and measuring their performance?

    1. I’ve been on those group trips and they have been memorable (for the wrong reasons). I never want to go on one again (and I actually really like my co-workers). And when someone plopped $1,000 in my hand, I remembered that.

      Those are my preferences but that’s precisely my point. Be flexible.

      Also, consider me highly skeptical about driving employee engagement through an incentives and rewards program. It’s a nice idea but things like culture, supervisors and basic job design do much more.

      1. would the incentive have been more memorable if it had been a paid holiday, or dinner in a fancy restaurant for just you and a friend?

        How do you see the difference between incentives and rewards? in the case of your holiday and the $1000, did you work extra hard to achieve those things, or were they given afterwards as a thank you by the company?

  12. One thing Lance I didn’t do was answer your specific question in the post…

    I think the three things you outlined do make cash incentives more manageable and less damaging. Keep them small, short-term and variable.

  13. I am a small business owner with 50 employees in the distribution business. You are both correct in your arguments but neither of you have mentioned culture. As a 100 year old family business we have used everything that has been talked about for incentives, and they have all been used at different times in our business cycle.
    My experience is that cash is forgotten over time if the basic needs of the people are being met, like competitive base salary, health insurance, paid time off, etc…if they are being met, non cash incentives have a greater lasting effect than cash.
    Not to say that is the same in all size companies, but for our size company, and family culture, giving someone an extra day off or adjusting their work schedule around their family or kids activities used to be as important as a cash reward.
    As I said, both of you are correct in your arguments. I would point out in this business climate, when people do not feel their jobs are secure in most industries, and health care is raising at a 20-30% rate (which most employees are contributing to) and real wages are not increasing, cash is what people need to feel secure, even in a small family business.

  14. A Tale of the Knives,
    How a well intended incentive program failed
    By Brooks Mitchell

    Once upon a time, Ralph, a well intended manager wanted to reward his high performing employees with an incentive reward program. So, he enlisted the aid of a vendor who sold him a beautiful glossy catalog of prizes his employees could win if they met their goals. Luther, a participant in the incentive program, achieved his goals and was allowed to choose any prize he wanted at the $200 dollar level in the catalog. The only item in the catalog that remotely interested Luther was a set of 6 steak knives. He thought it would be nice to use the knives at his annual beer and bar-b-que party in four weeks.

    Luther was irritated when the knives arrived in the mail 5 weeks later. But, he was even more aggravated when he discovered the identical knives could have been purchased on Amazon for $100. Then he became enraged when his monthly paycheck was short by $60 dollars to cover the taxes on the $200 knives.

    Luther complained to Ralph and tried with no avail to return the knives for the $200 he now felt entitled to receive. Ralph became angry with Luther and felt he was an ungrateful employee. The problem was not resolved and festered for several weeks.

    The moral of the story

    A well intended incentive reward program produced negative results. And, worst of all, Ralph now has to deal with a disgruntled employee with a set of knives.

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