Cash or cupcakes: Is money the best motivator?

Need to know:

  • Research often shows financial rewards are top of the list, but younger employees increasingly look for something more meaningful and experiential.
  • Financial drivers can be highly effective if they are proportional, fair and well communicated.
  • Perks can more easily be related back to specific behaviours and employer values, whereas cash can blend easily into a pay packet.

In December 2019, employee engagement platform Peakon reported that 2,000 UK employees had placed financial rewards and bonuses at the top of their Christmas wish list. Meanwhile, in January 2020, Virgin Incentives reported that 82% of employees found financial bonuses made them feel most valued.

However, numerous surveys over the last few years have also reported that other benefits or policies are high on the list. For example, in the Virgin Incentives research, extra annual leave came a close second at 78%, while, in 2017, Sodexo Exchange reported that 84% of younger employees prioritise experiential rewards or vouchers.

With such conflicting views flooding the debate, the demand for diverse benefits rising, and a growing awareness of the importance of employee engagement and motivation on business results, employers might be forgiven for feeling unsure where to start.

So, what is more motivating: classic cash incentives, or non-financial perks and reward?

Financial drivers

It would be easy to assume that a workforce comprising multiple generations, each faced by unique financial challenges from rising student debt to the squeeze of elder- and childcare, will always see cash as a top motivator.

At a basic level, this is true, as shown by the backlash in January when Starbucks introduced a mindfulness app subscription for employees as part of its benefits package, only to be met with online vitriol about not simply paying better. No matter how nice the benefits package, it seems poor pay will out.

In a more positive vein, Greggs’ approach to good employee productivity and soaring profits was to share financial rewards with staff, being widely lauded for relating hard work to both business success and a meaningful cash bonus.

However, it is not as simple as throwing money at the issue of motivation. A cash reward, as with any other benefit, needs to be thought through, relevant to the workforce, and meaningfully communicated.

For example, it must be scaled to the employee’s contribution, says Luke Fisher, founder and chief executive at recognition platform Mo. A voucher for £20, for example, might not have the desired effect for a high-earner who has dedicated numerous hours to a large-scale project, but could work wonders in other situations, especially if it equates to around two hours of a shift-worker’s time.

Following some clear ground rules, therefore, can ensure that using financial reward as a motivator is successful, says Dr Joe Cainey, director of data science at Peakon.

“We have found that the communication of pay was far more predictive of whether someone would leave than the actual salary; whether a [business] is open about its salary framework, whether it’s easy to have a conversation with your boss about salary, and then the perception of fairness, which is more important than everything else,” he explains. “It has to be well understood and it has to be fair.”

Therefore, pay and bonuses are arguably highly motivating, but not in and of themselves; financial rewards must be scaled, proportional, and part of a positive overarching culture.

Low returns

The prevalence of research stating that pay is of the utmost importance is hard to ignore. However, there is a chance that this partly reflects the assumption, made by both employers and staff, that money is the best option when, in fact, other perks might boost wellbeing or work-life balance, for example, and be much more valuable in the long run.

Indeed, there is the danger of a diminishing motivational return on cash awards, says Iain Thomson, director of incentive and recognition at Sodexo: “What can be quite damaging is if [a bonus] almost becomes part of [an employee’s] normal pay, so if [they] don’t achieve it, for whatever reason, people can suffer from disengagement. The big one is also that if it becomes part of [expected] pay and reward, it is no longer rewarding behaviour. It doesn’t really drive performance.”

Arguably then, while employers should ensure employee financial wellbeing is catered to by fair pay, they should look elsewhere when it comes to motivation.

Other perks

Increasingly, employees are looking for rewards that add value or meaning, which is easier to demonstrate with perks than with cash.

“When you look at it through the eyes of the employee, there is a whole host of factors that determine how meaningful reward is,” says Fisher. “In the most holistic sense, [it should be] something that leads to a level of fulfilment to [the employee]. So, it just being money does, and will continue to, miss the mark. The big thing we’re championing is a level of personalisation, based on [the employee’s] motivational drivers.”

Ultimately, the key is choice, says Michael Custers, chief marketing officer at SD Worx. “The overarching trend is fluidity and flexibility, and the other trend is connection to their life events,” he explains.

Providing experiential rewards, whether large-scale or everyday discounts, can also have knock-on effects for the employer brand. “[Employers] can get some publicity out of that, and drive other people’s performance indirectly and get more for [their] money,” says Thomson. “People don’t like to talk about salary and earnings, but are far more likely to talk about something that’s experiential; a spa day, the cinema or a meal. [Employers] can also link more experiential rewards with [the] business and values, it’s not easy to tie a cash value back to business beliefs.”

Striking a balance

As with many elements of motivation and engagement, there is no one solution, and no black and white answer as to which option will be most effective.

“It’s not either, or,” says Fisher. “The reward should be related to the level of effort and should be thoughtful or meaningful for that individual; it’s the thought that counts. Give them an understanding that you acknowledge their contribution.”

Custers adds: “Even beyond reward, it’s also about control over their time; that idea of flexibility has an effect on how [employers] reward people. Giving people the ability to trade rewards, to buy or sell [holiday] days, is also a way of giving people control over their own lives.

“[An employer] will typically have a happier employee if that employee is able to balance or intertwine their life with work in a way that makes sense for them.”