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Cash versus non-cash rewards

29th Oct 2007
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Which approach is best in your organisation - a pay-based or gift-based reward system? Mike Morgan, MD of Peoplevalue, champions the case for a non-cash rewards scheme due to its "psychological and motivational value".

Is it possible for an employee to demonstrate pride and achievement with a pay-based reward? Have you ever seen money displayed on someone's mantle with pride after their employer had recognised their contribution?

Probably not; if anyone is awarded money for achieving a behavioral or business goal, or through an incentive programme in their company, they are most likely not going to show you the money - they will go and spend it.

Non-cash rewards: The weapon of choice

  • Feel Good Factor. People feel a little uncomfortable talking about money; however, it is easier to talk about a gift or trip.
  • Memorability. Cash normally gets used for basic needs, so doesn't carry the same memorable qualities.
  • Reward Value. People use cash to buy things or it is absorbed by debt. Non-cash rewards allow the employee to indulge themselves rather than pay a bill.
  • Gift Value. If you give cash rewards, often employees will consider this part of their compensation structure, sp the reward becomes expected.
  • Trophy Value. Non-cash rewards last for a long time, cash does not. People can brag about gifts.
  • Tradition. Non-cash rewards can be utilised to establish a repeatable tradition in your company. These traditions are part of building a corporate culture.

When polled, corporate employees always rank financial reward as the number one incentive they can receive at work. However, when people are asked how they feel after receiving a specific gift or the equivalent financial value in their pay-cheque, they routinely report feeling better about the gift.

This is one of the many considerations in the convoluted argument of cash versus non-cash reward. For the modern, conscientious business, it is clearly an issue which requires more detailed discussion.

Satisfaction equals success

An accepted proposition of modern management is that reward is an effective conduit for a productive, motivated, valued workforce, and provides positive feedback for an employee's performance and achievement of individual and team-based goals. In this context, a company's success is directly correlative to its employee's satisfaction.

Non-cash rewards are becoming increasingly utilised by companies looking to incentivise performance and to promote a productive work ethic among their employees. This trend demands a closer look at the motivations behind the proliferation of non-cash based rewards systems in the modern business environment.

While both cash and non-cash rewards recognise an employee's contribution to a company, the similarities end there. Non-cash rewards such as pampering, activities, driving and flying days, among other aspirational gifts and experiences, have a memorability and the potential for the development of the employer-employee bond that monetary rewards don't have.

A company's justifications for the preference of one to the other can vary depending on the motivational connotations they attribute to a particular form of reward.

Human Resource management research routinely emphasizes the place of a motivational programme in any modern management strategy. Reward systems are becoming increasingly influential in the workplace and are not only linked to performance goals, but also a rise in workplace morale and overall employee satisfaction.

The cost-effectiveness of non-cash rewards has, in recent years, seen them increasingly placed in a position of prominence over cash in businesses' reward strategies. It is argued that key to the success of non-cash reward systems is the autonomy it allows the individual employee when selecting the type of reward they receive, a choice which lets the recipient feel in control of their own recognition. Coupled with this autonomy is the monetary ambiguity of non-cash rewards. It is harder to put a price on an experience or an activity day, and as a result, they are often ascribed a higher value than their actual price.

Monetary, or cash based awards, can form a constituent part of a company's internal rewards. Typically consisting of salary increases, profit sharing, stock options etc, cash incentives when put in place have a recognised positive contribution to an employee's self-esteem, sense of fulfillment, motivation and need for recognition.

A new generation of employees

This, however, is undermined to an extent by a new generation of employees who place a greater emphasis on experience, and to whom the traditional long-term incentives such as stock options no longer seem relevant. The non-flexible cash based reward systems are unable to evolve to meet the aspirational requirements of a new generation of employees. The autonomy of reward ensured by non-cash reward systems is flexible to the new needs of employees, and this compatibility is demonstrated by empirical research that suggests that non-monetary rewards are seen to many as more important than their monetary equivalent.

With a psychological separability to employment income, non-cash rewards are seen as an extraordinary benefit with luxury items justified by the view that they have been earned in recognition of effort and personal achievement. Accordingly, earning a non-cash incentive carries more perceived value than receiving the equivalent value of the reward in cash.

"A comprehensive rewards strategy is a potent tool for any employer looking to recruit and retain a resourceful workforce."

One of the major concerns of business is a high employee turnover. Surveys have suggested that one of the factors influencing an employee's decision to leave is a lack of reward and recognition, and a feeling that their opportunities at work are stagnating. Other factors include a high stress work environment, poor communication and monotony. Businesses incur costs due to high employee turnover both directly and indirectly, and a comprehensive rewards strategy is a potent tool for any employer looking to recruit and retain a resourceful workforce.

In addition to the retention of talented employees, rewards are considered to improve employee productivity by around 20 to 30 per cent in the acknowledgement of personal and team-based achievement that forms part of the positive catalytic effects of reward.

Historically, business has favoured non-cash rewards for its ease of administration from an accounting and audit perspective. This trend is now being reversed by the modern technological streamlining of non-cash reward systems and the number of businesses using non-cash reward programmes is increasing.

To combat high employee turnover, motivational programmes have become a necessity for employee retention in the modern managerial environment. In the selection of the right rewards system, the first step for a business is the acknowledgement of the individual benefits of cash and non-cash reward.

The decision to implement a certain type of reward must be moulded by the motivations of a company and what they hope to get out of a rewards system. Both cash and non-cash rewards have positive attributes and relative merits; there is certainly no definitive solution. A company must consider the traditional cash rewards and their relative simplicity from an accounting and audit perspective versus the modernity and future-proofing flexibility of non-cash rewards.

More and more companies are deciding that the psychological and motivational value of non-cash rewards is the right solution for them. It is a trend that now sees non-cash reward systems increasingly in ascendancy.

Cash Rewards

Pros:

  • Ultimate flexibility
  • No selection hassles
  • Easy to give
  • Time efficient

Cons:

  • Little trophy value
  • Expected as part of compensation package
  • Cash disappears
  • No appropriate bragging rights
  • Used to pay for basic needs

Non-cash rewards:

Pros:

  • Memorable
  • Symbolic and trophy value
  • Cost-effective for company
  • Considered as a gift
  • Bragging rights included with awards

Cons:

  • Up to now has been difficult to administrate

Peoplevalue develops flexible, high impact and exciting employee motivation, membership and customer loyalty schemes.

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