Is cash always the best reward choice for employees? No. Is cash never the right reward alternative? No.
The challenge with both these positions is the absolutes of “always” and “never.” Life and business is rarely that simple. We live and work in a world of nuance, of “sometimes,” of “if the situation warrants.”
Long-time Café readers know I generally come down against using cash bonuses as the primary means of employee recognition and reward. But that doesn’t mean cash doesn’t have a place. The challenge is all too often cash is the automatic default because it’s the easy solution. After all, if you asked employees what they would prefer as rewards, “cash” is hands-down the most frequent answer.
That doesn’t mean it’s the right answer. After all, if you asked employees if they thought the company should pay 100% of healthcare premiums and fund daily massages, the answer will also be “yes.” But that doesn’t mean it’s the right answer to successfully run your business. HR Pros are in the position of making the most strategic decisions in Total Rewards for their organizations. That includes carefully considering the position of cash rewards.
A recent blog post on the Harvard Business Review blog network highlighted this balance nicely, noting that as the stakes get higher, cash can (and likely should) play a greater role. But for the vast majority of employees toiling away, thoughtful gifts mean more:
“A study published last year by German and Swiss researchers took a more literal position on the gift exchange hypothesis, suggesting that economists' focus on cash might often be misplaced. The researchers found that gifts were far more motivating to short-term employees than unexpected cash bonuses, effectively paying for themselves by improving productivity.”
The more interesting question is Why do non-cash awards matter more? It all comes back to communicating to employees how valuable their efforts are to achieving a greater goal. In other words, how meaningful their work is within the bigger picture. As the HBR blog post concludes:
“And that, more than gifts versus cash, is really the study's takeaway. Many employees toiling away in stores, factories, and cubicles are desperate for a sense of meaning in their work lives. Even the smallest gesture of kindness that shows they're part of an organization that actually cares can give them purpose — and that leads to motivation.”
What does this mean for you as you plan compensation and reward programs? Simply this: carefully consider the role of cash. Think through the impact of cash awards vs. more personal award options. Consider these questions:
- Are cash awards sufficiently large so they do not become lost in the paycheck?
- Are cash-based bonuses clearly communicated as something that must be earned and the parameters around those requirements so the bonuses do not become an expectation or entitlement?
- Are a mix of more personal, meaningful rewards offered far more frequently to reinforce for employees what is most needed by the organization and to communicate to the employee how important their contributions are to success?
What’s the most meaningful, memorable reward you’ve received? Why did it have this impact on you?
As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.
Derek:
Great post. Two things struck me reading it. First the quote you had from HBR "Many employees toiling away in stores, factories, and cubicles are desperate for a sense of meaning in their work lives. Even the smallest gesture of kindness that shows they're part of an organization that actually cares can give them purpose — and that leads to motivation.” This argues to me that performance appraisal is not only necessary but needs to be done more frequently and more informally.
The second thing is that it is no surprise that small, almost random rewards provide more motivation. Afterall that is what Skinner discovered working wiht rats. (Yep, I broke out the old Skinnerian reinforcment theory of motivation.) Anyway, great stuff as always.
Posted by: Michael D. Haberman, SPHR | 03/12/2013 at 08:30 PM
To Michael's point above, they "algorythimc" workforce has been proven to be motiviated by if then cash incetives.... and enforcing (and reinforcing) that through consistent performance feedback is critical. Also the point from the HBR article about "purpose" is dead on - whether it comes from recognition or other management techniques. (obviously I have read Pink with terms like Algorythmic and Purpose in the same paragraph!)
Michael: love the reference to the "Skinner Box" !
Personally, I think reward and recognition structure is best designed with thorough insights into your workforce. What do they say they like? What does data prove they like?
Overall, this topic reminds me of one of my favorite quotes from the Star Wars series: "Only a Sith deals in absolutes. "
Posted by: Jeffrey Haynes | 03/13/2013 at 09:27 AM