Cash or Non-Cash Awards: Which Is More Effective?

Kelly | Employee Recruitment and Retention | Thursday, January 24th, 2008

(This column appeared in the Northwest Business Monthly Magazine, December 2007)

Have you ever wondered what is more effective – a $100.00 holiday bonus or an iPod – in recognizing and awarding your employees?  Both cash and non-cash awards are widely used by employers, but little has been studied about how businesses can and should implement award/motivational programs and the extent to which these programs can help achieve a broad range of business objectives.  A preliminary study into this field was conducted by a group of academics from University of Wisconsin-Whitewater and Northwestern University and presented to Forum for People Performance Management and Measurement.   A summary of their findings is noted in this article.

 

In addition to employee considerations, awards should meet your organizational needs. Organizations typically use award programs for some of the following reasons:  positively change how employees feel from day to day, how they support your organizational goals, their willingness to change to support those goals, their degree of understanding about the goals, their ability to influence goal outcomes, and management’s support or recognition of an employee’s efforts.  In fact, most managers in the academic study reported great success in impacting or reinforcing organizational cultures or supporting corporate values with an award program.  A requisite of any award program is your ability to measure how well a program affects your goals and objectives.

 

If you currently have a program you use you might want to see how it compares with the information in this article.  If you don’t, you may want to consider trying to implement one.

No one size fits all:  It Depends on the Situation

The way in which you choose to reward your employees is situation specific and there are definite differences in terms of effectiveness and superiority between cash and non-cash options.   Also, the success of award programs differs by job category.   For example, non-cash award awards are believed to be more successful for customer service, support staff, and management jobs.  Cash programs tend to be better for sales, manufacturing, and call centers.  Awards will appeal to different demographics.  For example, young workers may appreciate more active products such as outdoor or hobby gear; whereas older workers might be more motivated by high end consumer goods.  Women might enjoy household goods, and men might be more inclined to enjoy items such as tools.  There are awards, such as electronics and clothing, cut across all age groups.  Therefore, an employee targeted, organized award program structure will work best.

 

In addition to the factors above, impact of awards have either a short-term or long-term effect.  Cash awards are seen as short-term.  When surveyed, most employees either use cash awards to pay for immediate needs such as bills, or don’t recall how they spent it.  This underscores the limited impact cash incentives have on employee motivation.  One of the problems with using cash awards is, especially if given as an annual bonus, it can be seen as part of base pay or compensation, even an entitlement, instead of recognition.  Therefore, if an organization is faced with having to terminate or change an existing program, can be seen by employees as a take away and consequently defeats the attempt to motivate.  On the other hand, non-cash incentives are seen to have a longer lasting effect.  For example, if you decided to give an employee an iPod then they will have a stronger association with that award and tell people how they got it.

 Non-Cash Awards Most Used and Effective

 Although both cash and non-cash awards are widely used, users of such awards predominately preferred non-cash rewards over cash rewards, and believe non-cash awards as more important for motivating employees and achieving organizational objectives and more likely to grow in importance in the future.  The overall leading non-cash tactics are employee recognition, followed by gift certificates, special events, merchandise awards, and email/print communications.  When it came to motivational effectiveness the leading tactics are employee recognition, gift certificates, cash rewards, merchandise awards, worklife benefits, special events and individual travel. 

On the other hand, cash awards are more effective for increasing sales and acquiring new customers/referrals.  Cash awards appear to be superior for sales, manufacturing, and call center employees.  Most likely this is due to these industries who have easily measured performance outcomes.

 Requirements for a Successful Award Program

The academic study highlighted three factors that were requirements to successful award programs.  First, businesses should have measurable organizational objectives.  Without clear objectives, employees become discouraged and programs struggle.  Second, regardless of whether using cash or non-cash awards, managers who set a budget are more successful than those that don’t.  A budget increases usage of the program and effectiveness of tactics.  Finally, a specific manager should be assigned responsibility for development, implementation, and measurement of the award program. 

   

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Kelly Lewis, SPHR, CCP of Allied HR Consulting in Bellingham is VP of Communications and Public Relations for the Mt. Baker Chapter of Society of Human Resource Management (SHRM).  The chapter is a non-profit organization for the advancement of the human resource management through the membership of business, education, and government professionals who are engaged in a broad scope of human resource management activities.  Professionals are from both private and public sector organizations serving Whatcom County and the surrounding area.  The chapter does not provide legal advice.  Please contact an attorney about this information. Website:  www.mtbakershrm.com

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