Why Cash Incentives Fail

Your program participants (your salespeople, your channel partners, your employees!) are at the heart of your business, and having an effective engagement strategy to motivate them is critical. Many companies continue to provide their top performers with cash incentives (bonuses) in recognition of their hard work, with the assumption that these employees will spend these extra dollars on something “extra” – something fun and luxurious, something they wouldn’t normally purchase for themselves.Having an effective engagement strategy to motivate your employees is critical. Click To Tweet

The thinking behind this type of pay-for-performance structure is that these hard workers will pamper themselves with the extra funds during their free time and return to work rested and rejuvenated. The problem, however, lies within the fact that the extra dollars either aren’t noticed on their paycheck, or simply seem to disappear quickly after they are received.

 

cash incentives failMost people are hesitant to spend money on themselves because it often means taking things away from their families, causing feelings of guilt. “Consumers often feel guiltiest about the things that provide them with the highest pleasure,” says Ran Kivetz, the Sidney Taurel Associate Professor of Marketing at Columbia University Graduate School of Business.

Interestingly, most people will still tell you that they’d prefer to work for a cash reward over some other type of incentive, even if they don’t know what they’d do with it. It makes sense, in a way: it’s flexible and can be spent on anything.

But are cash rewards truly the most motivating in terms of enhanced performance?Are cash rewards truly the most motivating in terms of enhanced performance? Click To Tweet

Let’s take a look at a study by Scott Jeffrey, PhD, analyzing the motivational factor of cash rewards vs. non-cash rewards with an equivalent value.

In his study, Dr. Jeffrey analyzed 441 call center employees over a period of two months while they worked towards a goal. 224 employees worked towards a cash incentive, while 217 employees pursued a non-cash reward of the same value. During the course of the study, employees responded to surveys about how often they thought about the rewards of the program.

At the end of the two month period, the participating employees pursuing a tangible, non-cash reward actually thought about their potential reward nearly 40% more than the group working for cash.

In addition, Dr. Jeffrey’s study was able to calculate that these participants had almost 25% greater commitment to their goals and offered about 10% higher performance than the cash group. He concluded that employees who think more frequently about the awards – even when comparable to the cash value – have an increased interest which leads to higher performance.

Another study, completed by Shaffer & Arkes, found that when employees make a hypothetical choice between cash and non-cash incentives, they do in fact choose cash. However, when the hypothetical becomes real and the award is revealed, employees actually performed better while pursuing the non-cash award, even when it has the same perceived value as the cash award.

When it comes to cash awards, many employees often become accustomed to their pace of work and expect the same payout each time. They know what their bonus or award is going to be, and so it’s thought of as income. But what happens if you want to change your business strategy? What if you decide your incentive tactic is no longer working for you? If you change it up, you are essentially giving your top performers a pay cut. Since they view it as part of their paycheck, they’ll also view it as a pay cut.

When you opt for a non cash reward system, you are free to change strategy as you see fit. Your recipients only see the end reward and perceived value, not the actual cost.

While many businesses today are looking to do more with less, non-cash incentives are the clear winner as being more effective and efficient, all while providing a higher ROI than their cash counterparts.

Check out the rewards page of our website to read more about our non cash reward options.

8 thoughts on “Why Cash Incentives Fail

  1. Hi jujst wanted to give you a quick heads up and let you know
    a few off the pictures aren’t loading properly.
    I’m not sure why but I think its a linking issue. I’vetried
    it in two different web browsers and both show the same results.

  2. If our goal is excellence, no artificial incentive can ever match the power of intrinsic motivation. People who do exceptional work may be glad to be paid and even more glad to be well paid, but they do not work to collect a paycheck. They work because they love what they do.

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