Guest Column - January/February 2012

Is It Time to Add More Non-Cash to Your Rewards Portfolio?

By Mike Ryan

With notable thought leaders like McKinsey, Deloitte, The Harvard Business Review and PricewaterhouseCoopers all weighing in on the role non-cash compensation plays (or at least should play) in the total rewards mix, it's time to reexamine the old paradigm that cash is the most reliable motivator. As companies look to maximize all of the resources available to them, the old orthodoxy that cash offerings are superior inducements—especially in difficult times—is a convention worth putting to the test.

As we slog through a sluggish economy, the debate over the economic impact of non-cash awards has a new context. How so? New studies have shown that non-cash, in the right circumstances, and in the right combinations, can actually be more effective and therefore more efficient than money alone. Non-cash awards—including merchandise, travel, gift certificates and gift cards, even a simple thank you, anything that's processed or delivered outside of the payroll practice—are better investments and more affordable solutions for companies looking to "do more with less." This premise should recast the debate for any company looking to optimize the compensation mix, but it should especially resonate within those businesses that still believe in the indisputable influence of cash payouts.

Cash Is King Right?

That's a bias long held by many business leaders and the reason some organizations still have closed minds when it comes to the potential impact non-cash awards could play within their organization's sales incentive and recognition plans . At the heart of their preconception is the false premise that companies should use one or the other exclusively. But the reality is that both have merit, and when properly blended, can create a flexible and highly motivating solution.

Cash should always be front and center in the compensation mix. It represents the primary pact between a company and its employees. It's the first thing that's discussed when someone is hired, and it's what an employee expects every payday. It's what pays the bills, frankly. But the questions worth examining are these: Is the promise of more money really what motivates us to do our best when we do our work? Perhaps more importantly, does cash alone represent what we really want to get out of the job?

A Broader Debate Emerges

Writers from dozens of publications, all catering to the non-cash incentive industry, have logged countless articles affirming the role of non-cash awards. That's not news, but when credible thought leaders outside our industry chime in, it's worth listening. In "Motivating People; Getting Beyond Money," published by McKinsey, the authors suggest that it's time to challenge the traditional management wisdom that it's only money that really counts. Through their research the authors found that "non-cash motivators—including praise from immediate managers, can be more effective than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock options." They go on to say that "non-monetary compensation can maximize effectiveness in aligning the goals of the organization with the emotional priorities of its people."

The best way to align compensation with what truly drives behavior was debated in the online article "Cash or People," where several Deloitte executives argued that companies need to take care of today's skilled workers by giving them what they really want: rewarding work, meaningful relationships, freedom, flexibility and acknowledgement.