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Shifting focus from cash to rewards

Many companies make the assumption that cash can fetch the results that they want from their workforce. Whether it is…

Shifting focus from cash to rewards

Representational image (Photo: Getty Images)

Many companies make the assumption that cash can fetch the results that they want from their workforce. Whether it is employees clocking in overtime to wrap up a project or achieving their sales targets, cash incentives seem to be a favourite motivator in the corporate climate.

While this may be the reason most people pull themselves out from bed to get to work every day but it is not always the best idea when it comes to motivating or recognising employees. Incentives are taken as a granted portion in the employee compensation structure, as something that they are entitled to. Here’s why organisations should shift their focus from cash incentives to rewards, to have the desired impact on their workforce.

To understand the best means to motivate and influence employees, it’s important to gain an understanding of how they work and make choices. Our actions and behaviours are governed by the decisions we make, and these decisions are steered by rational thoughts and emotions. While a lot of us would like to believe that we make rationally steered decisions, and more so when it comes to workplace dynamics, the truth is in fact otherwise.

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According to the Behavioural Economics, 77 per cent of our behaviour is driven by emotions and 23 per cent by rational thoughts. While incentives may seem like a rational pick, non-monetary rewards make an emotional connect with employees. If done right, it will not just motivate to achieve targets, but can also be used to align their behaviour in line with corporate values. Often, there is a say-do gap between what people say they would like to do versus their actual actions.

To apply this in the context of workplaces, while cash or cash equivalents like vouchers may seem like what motivate employees to work harder in theory, it is non-monetary rewards such as merchandise or experiences that work in reality.

Data are presented from six experiments in a study by Victoria Shaffer, Ph D, and Hal Arkes, PhD in 2009 in the US, demonstrated preference reversals for cash versus noncash incentives. When given a hypothetical choice between, participants chose the cash incentive.

However when asked to evaluate them separately, they gave higher ratings to the non-cash incentive. These findings were replicated with “real” monetary incentives. Preference reversals were partially dictated by the type of non-cash incentive offered.

Employees receiving rewards from an incentive programme reported that recipients of non-cash awards would enjoy their reward more and would be more likely to tell their friends about it. When the value of rewards up on offer is greater, the efforts that individuals put in to earn it, is greater too. Rewards also have a hedonic angle to them which makes them far more exciting to earn than incentives.

Focus on what your employees need versus what they say/think that they want. Non-cash rewards such as luxury merchandise and experiences can motivate and engage employees better than cash awards. Incentives such as vouchers can often backfire, simply because at the end of the day, they feel transactional, as if they were a purchase, rather than a reward. Employees may start comparing the value of the voucher being offered, causing some of them to feel as if they are not appreciated enough, causing their motivation to take a hit.

Even with employees who are not undermined by comparisons, the emotional connect that cash rewards create is short-lived. This is just a means for employees to purchase something, when compared to a hot-air balloon or fine dining experience which would make them feel as if the organisation has treated them to the exclusive, special well-deserved reward to recognise for their good work. Non-monetary rewards offer lesser leeway for comparisons among employees, and will not undermine their motivation as cash incentives would.

Behavioural economics principles reveal why non-monetary rewards are more effective than cash incentives in the long run. Non-monetary rewards like experiences are hedonic. Non-monetary rewards rake in points for sociability as they give employees bragging rights, unlike cash incentives. Not everyone would go around their social circles bragging about the thousands they got as cash incentives, when compared to an experiential reward they received from an employer.

Organisations today need more than just a traditional incentives structure to drive tangible results and retain employees. Non-monetary rewards need to be at the centre of the employee strategy to have a sustained, positive impact on employee motivation, productivity and loyalty. A well-rounded programme that rewards employees to recognise their efforts is the key to organisational success in the long run.

(The writer is managing director, BI Worldwide India)

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