Cash or non-cash staff rewards

A number of factors will determine whether cash or non-cash rewards best suit a workforce, says Nicola Sullivan

The large cash bonuses given to workers such as investment bankers and City traders often make headline news. The attention these receive can create the impression that cash reward is the ultimate form of recognition in the workplace.

But despite widespread enthusiasm for cash, there are doubts about the impact that rewarding staff in this way has on employees, prompting interest in the value of non-cash alternatives.

According to Julian Bazley, incentives specialist at performance improvement firm Maritz, people are generally unlikely to remember what they spent a cash award on, while only a very small proportion of employees will actually spend it on something special for themselves. More often than not the money is absorbed into paying for groceries or household bills.

“While people often say, given the choice, that they would prefer cash, the reality is that for any company hoping to encourage certain behaviour, rewarding with an appropriate non-cash reward, whether this is points on a stored value card, an experience [such as] white water rafting [or] a spa treatment, or a place on an incentive travel trip, is more effective,” he explains.

Derrick Hardman, managing director of Capital Incentives and Motivation, adds: “While cash is the most straightforward and ultimately versatile, safe option for all, it is often added to salaries, [so] unless it is a large sum, it is scarcely noticeable. It often ends up being swallowed as part of household income, which is hardly memorable.”

In order to be most effective in motivating staff, any reward should be considered to be meaningful and motivational by the recipient. Non-cash rewards can be an effective way of achieving these aims, says Bazley.

A non-cash award can be as simple as a thank-you letter, or as glamorous as a team holiday abroad. Other possible examples include a bottle of champagne at the end of a good year, meals out, tickets to the theatre or concerts, retail vouchers, experience days or a bunch of flowers.

Different types of awards can be used to acknowledge a whole range of positive behaviours shown by staff, which could range from high attendance levels, hitting long-term targets or coming up with innovative ways to improve the efficiency of the organisation. But employers should ensure whatever award they choose to present is suitable for individual employees and what they have achieved.

“The measure of an effective reward is one that increases the discretionary effort of the target audience, drives performance improvement and encourages the recipient to repeat the behaviour that earned them the reward, be it selling more, co-operating as a team, or putting in extra effort for the good of the business. Where it’s discretionary, the important thing is to use an award that is actually going to motivate and be relevant to that individual,” explains Bazley.

If employers fail to motivate employees through the types of incentives they offer, they could experience problems with staff retention. Helen Murlis, a director at the Hay Group, says: “If you’re thinking about motivation, higher performance, employee engagement, employee commitment, unless you’ve got [these in place] people will be looking for something else and somewhere else to go.”

Align with values
Employers should also look to align their incentive scheme to the values of their organisation. “You would have company values around things like commitment and team work so people would be recognised under that category,” says Bazley.

When deciding whether to opt for cash or non-cash incentives, employers should also consider who they want to reward. Non-cash awards, for example, are often used to mark groups’ achievements. “Much more commonly, people will [offer] non-cash [incentives] for teams. It might be a team away day, it might be a team event [such as] a team dinner, [or] a team trip. People respond to fun and celebration,” Murlis explains.

Paul Girling, deputy managing director of performance improvement business Projectlink, adds: “Everyone remembers gifts or experiences, no one remembers an extra fiver in [their] pay packet. Non-cash rewards are a great way of a company showing that [it has] bothered to make an effort.”

Cash awards, however, can often be easier to distribute and give employees a greater element of choice. Nevertheless, Girling believes non-cash awards have a greater visibility, and in some instances, enable employees to do things they have never done before.

The promise of both a cash or non-cash award, however, can help with staff retention. According to Bazley, for example, holidays that are booked as far ahead as the following year can be used to retain employees. This can be particularly useful in sales departments and call centres where there is often a high staff turnover. Trips abroad can also be awarded on a team basis, meaning individuals are motivated to hit targets, not just for themselves, but also for the benefit of their colleagues.

Rewards such as points-based store cards can also be effective at rewarding employees involved in a long-term project, says Bazley. These cards can be topped up with points at intervals during a particular task. The points are then exchanged for products through selected retailers. Points-based schemes can also be used to acknowledge employees’ participation in a suggestion scheme. Points can be awarded if ideas are implemented, as well as additional ones if the idea then reduces costs or improves efficiency.

Darren Ziff, corporate sales manager at Leisure Vouchers, believes non-cash rewards are highly motivational but warns employers to alter what they offer so staff don’t receive the same reward too often. “It engages, it gets [them] to do something [they] will remember it and work towards getting it again. [But] giving someone the same reward every single year may not have the same effect.”

However, there are some instances where employers prefer to recognise achievement with cold hard cash, such as large bonuses and commission schemes, entitlement to which is often set out in employees’ contracts. Employers looking to change these in favour of non-cash alternatives, therefore, could find they are going against their contractual obligations, says Murlis.

“When there is severe market pressure where you’re going into a new area of business and you need to hit the ground running with people who are trained, and when you’re going into an existing market very aggressively and trying to grab a market share of talent then you might do it.

“If you believe in what’s called efficiency wage theory, which is if you pay more you get better quality, then you might believe you get higher production from better people if you pay them more,” she explainsAlthough large cash bonuses are traditionally used to recognise the talents of top achievers and senior executives there is also scope to use imaginative non-cash alternatives. Bazley says luxury trips abroad, VIP packages and invitations to the premiere of a West End show could also be appealing incentives for top-level staff.

Non-cash alternatives can work out to be more cost-efficient than cash awards. All employers have to do is work out which holds the most value for their workforce.

Pros and cons

Cash awards:
• Are easier and less expensive to distribute to employees.
• Staff can spend cash awards on anything they want.
• Are a safe option for all employees, regardless of gender, age and ethnicity.
• Cash is less likely to make an impact on employees, as they are less likely to remember what they spent it on.
• Employees are less likely to spend cash on a special treat for themselves, and more often than not it will be absorbed into household bills.

Non-cash awards
• Are more memorable, and therefore are thought to be more motivational.
• Holidays, concerts and experience days can be used to motivate a team and retain an organisation’s workers.
• Can be tailored to provide economical incentives for high-level executives.
• Are not always an adequate replacement for bonuses or commission-based pay.
• If employers choose an inappropriate non-cash award for staff they stand the risk of decreasing morale and motivation levels.
• Take more time and effort to organise and employers have to make sure they offer a variety of rewards.

Case study: Ford makes motivation a goal

Ford uses ad-hoc non-cash incentives, alongside commission to incentivise sales employees and increase the sales of specific vehicles.†

The Golden Goal penalty shootout incentive scheme, introduced in 2006, was designed by Maritz to increase the motivation of Ford’s 450-plus commercial vehicle sales people, who played the game every time they sold three qualifying commercial vehicles.

After calling a hotline to have their claim verified, staff were connected to an automated virtual penalty shoot-out, which featured sports commentary.

Using phone keypads, players could choose where to direct each of the five penalty shots, which were then taken at random by the computer. For each score the system selected an award, which ranged from a £50 voucher or football and entertainment merchandise. David Calder, medium car product manager, says the game helped to increase retail volumes through a renewed focus on sales. “It has been hugely effective in engaging and motivating sales teams in Ford dealerships. The concept had the whole network talking and competing with each other.” Ford also used a similar incentive game, timed to coincide with the 2007 European Championship, to motivate all car sales staff.