The merits of benefits versus cash incentives

Case studies: SAP, Nike

Article in full

When trying to motivate staff to achieve particular goals employers can use a number of incentives, ranging from bottles of wine and weekends away to cold hard cash. But it’s tricky to decide whether a cash incentive scheme or non-cash benefits are most appropriate, especially when there are compelling arguments for both. And while you might think that asking employees what they prefer is a good strategy, this will not always help. Mike Davies, director of performance improvement at communication and motivation firm BI, explains: "If you were to ask employees what they want, their stated preference would always be cash."

However, just because employees say they want extra money, this does not mean it will always be the most motivational option. "Cash is a hygiene factor, not a motivator. It is something that you need, but it is the kind of thing that stops you leaving your job, rather than making you more motivated," adds Davies. Chris Hartley, business development manager at Park Retail, which operates voucher incentive company Love2reward, adds: "Cash will always be high up [if you ask employees what they want], but whether it helps employers to achieve their objectives is less well known." One problem with cash is that it often goes into employees’ pay packets at the end of the month and therefore may not be associated with what they have achieved. "[With] more traditional forms of reward, whether they are holiday-based, voucher-based or food-based, there is that tangible element, that sense of occasion where maybe the head of the department is physically handing something to the individual as opposed to it being lost in the pay packet," Hartley explains.

Deborah Rees, director at Innecto Reward Consulting, also believes non-cash incentives are the best form of motivation. "In terms of bang for [your] buck, non-cash rewards are far more effective. If you look at employee surveys and individual companies, [you] find that employees rate those rewards much more highly than cash." One advantage of awarding money, however, is that it is possible for employees to spend the money on whatever they want, rather than being given something they don’t value. So opting for non-cash rewards, and making the range of choices as broad as possible can help to maximise the motivational impact. Peter Christy, director of reward consulting at Hay Group, says: "If you said to me, ‘you and your wife go for a meal and claim through expenses’, that for me would be a meaningful benefit.

My colleague might appreciate an extra day’s holiday and someone else might appreciate getting the latest technological gismo. It comes down to understanding what turns different people on." But it is also vital to ensure you are not offering incentives that could offend employees. "If you employ a range of people from different faiths it may not be appropriate to give alcohol, for example. The last thing you want to do is say ‘thanks very much’ and give a bottle of champagne to someone who is really offended." If a company does opt for cash, it should be warned that the value is likely to be perceived as less than a non-cash reward worth the same amount. Hartley estimates that a minimum of £20 for a non-cash reward is usually viewed as tangible enough to make a difference. But the same amount of cash, once taxed, is unlikely to get the same reaction. "There are still some organisations that put insufficient money into [cash reward] programmes. If you give someone an opportunity to earn a 5% bonus, it is not going to lead to any change in behaviour because it is not enough,"Christy adds.

Ian Wright, compensation manager Europe at software company SAP, which offers one-off motivational cash incentives, agrees that the amount employees are offered needs to be sufficient. "We try to design focused [cash] incentive schemes so that we keep the cost to a minimum but at the same time ensure that employees see the value in going the extra mile. [The reward] needs to be big enough that they feel it makes a difference to their overall income." Whether employers choose cash or non-cash incentives, it is often not the value of the reward, but the recognition that matters most. "Often if you are going to motivate people, it is not the value [of the reward], it is more the recognition, the prestige and the brag factor — the fact that you can go [to] the pub and tell your mates that you just got an all-singing, all-dancing iPod for whatever you did," says Davies.

n his opinion, cash doesn’t have quite the same effect. "Most people wouldn’t go [to] the pub and tell their mates the size of their bonus or their pay cheque." Employers can make the most of the recognition factor by presenting rewards in a team situation. "It is nice for the manager not just to pass [the employee] something quietly, but to say to the team, ‘this person has done something well and we are really pleased’," says Davies. Whichever reward an employer opts for, timing is key. "It is about making it clear what people have got [the reward] for and giving it as fast as you can. Immediacy has the biggest impact, so if you say ‘that was really good work’ and then don’t do anything about it for three or four months, by the time the person gets something it is not reinforcing [the desired] behaviour," Rees explains.

Case study: SAP

Software company SAP offers quarterly bonuses and one-off cash incentives to encourage staff to meet demanding targets. It has tried using non-cash benefits in the past, but found this did not have such a strong motivational effect. Ian Wright, compensation manager Europe, says: "We take the view that cash is king because every employee is personally motivated by different needs. Cash gives them the flexibility to treat themselves however they choose." But he appreciates there is a danger that incentive payments will just disappear on everyday things. For this reason, the company often asks employees how they would spend an incentive payment. "It’s not because we need to know, it is just so they have something aspirational in mind. Otherwise, the money could just disappear into their bank account and be used to pay the bills." Making sure cash incentives and bonuses are paid quickly so employees see the link between their achievement and the cash is also important. "We pay [bonuses] quarterly because we believe it is important that we recognise people’s contribution as soon after the event as possible." says Wright.

Case study: Nike

Nike uses retail vouchers to motivate staff in both the retail and wholesale arms of its business. Last year, it moved from offering Air Miles vouchers, which many staff felt were not relevant to them, to general retail vouchers. Elma O’Reilly, HR adviser, explains the vouchers are used in a variety of ways to motivate staff. "We do things on a Saturday when we know that it is going to be really busy, like [saying] ‘today the first person that reaches a sale of £x amount will receive a voucher’." But she doesn’t believe the monetary value of the reward is as important as the recognition factor and the fact it is so immediate. Being able to give the vouchers out at team meetings is also considered to be important and is one of the reasons why the company does not reward with cash. O’Reilly adds: "When we give out vouchers for employee of the month or whatever, we do it in a group situation. It makes it a bit more special when they might not check their bank account every day and see the [money] going in." Total Motivation Show: Seminar Programme