Departments - July/August 2008

The Insider:
Why Isn't Cash the King of Rewards?

By Catherine Eberlein Pfister


Twenty-five years ago, before I even knew the incentive industry existed, the association I worked for gave me a crystal vase to thank me for completing a difficult project on time and under budget," said Karen Renk, executive director of the Incentive Marketing Association. "That vase is still in my dining room. Every time I look at it I feel good about myself and pleased that I was recognized for my efforts.

"That's the power of a tangible award," she added. "And my experience is consistent with the findings of the 2002 and 2005 Incentive Federation (IF) studies. Both reports found that companies feel they build more effective and more memorable programs around merchandise and travel than cash. The 2007 IF study also found that 77 percent of the respondents from companies that report annual revenue of $100 million-plus view merchandise and travel incentives as an investment rather than a cost."

Even though we're familiar with these studies, we may still be tempted once in a while to use cash incentives. Before you do, consider what reward, recognition and performance improvement pros have to say:

Cash incentives have little connection to performance improvement.

"Employees may say they want cash as a performance reward, but it isn't the most effective incentive," said Roy Saunderson, president and founder of the Recognition Management Institute. "People actually work hardest for tangible rewards, according to research from Scott Jeffrey, assistant professor of Management Sciences from the University of Waterloo."

Jeffrey conducted lab experiments in which people who worked for a cash incentive increased their level of performance by 14.6 percent over those receiving no incentive at all. Not bad, right? But compare that to those working toward a non-cash incentive. They improved their results by 38.6 percent.

According to a study by the International Society of Performance Improvement, incentive programs that are implemented and tracked correctly, in addition to offering tangible awards, increased performance by an average of 22 percent. Team incentives increased performance by as much as 44 percent.

Cash offers little emotional engagement.

"Tangible rewards are both extrinsic and intrinsic motivators; they provide strong emotional appeal to participants' personal wants and interests," said Louise Anderson, president of Anderson Performance Improvement Company. "They also provide lasting satisfaction and long-term performance improvement."

She added, "Non-cash incentives help create positive emotion in the workplace, which greatly influences commitment to a work task. Recognition programs that target behaviors—and provide high-quality merchandise rewards—may be the single most important performance improvement tool available."