Cash vs. non-cash rewards: in the land of employee rewards, cash isn't necessarily king - Awards & Incentives Agenda - Hitchcock Chair Co., among others

HR Magazine, April, 2003 by Diane Cadrain

"Never underestimate the power of a 'thank you,'" says Tracy Michaud, HR manager at the Hitchcock Chair Co. in New Hartford, Conn. It is a statement that's hard to argue with. After all, a tangible expression of thanks or of reward can be an excellent way to encourage higher performance and promote valued company behaviors.

Like many things, however, the concept of providing incentives and rewards is simple, but the execution can be difficult. For example, a crucial question facing Michaud and other HR professionals is this: Are cash rewards the most effective ways of saying thanks to your employees?

It's a significant question for employers that have suffered through the nation's current economic woes and are strapped for cash; it's especially important to Michaud, whose company seeks to provide positive rewards even while it considers layoffs for the first time in its 200-year history.

Fortunately for Hitchcock Chair and other employers, cash is not the only--or even necessarily the best--way to motivate workers. In fact, while cash is the epitome of a flexible award--it can be turned into almost anything--it does have significant limitations. For example, employees must pay taxes on any cash awards they receive, which diminishes the value of the award. Some employers "gross up" awards to make up for the amount lost in taxes, but this raises the cost of the award.

Other problems: Cash doesn't reinforce brand loyalty, says Michaud. And employees may come to expect a regular cash payout. "Cash bonuses become an entitlement, and you lose the bang for the buck," says Michaud.

Motivating Factors

The most compelling reason for using non-cash rewards, however, may be purely based on efficacy: Simply put, cash is not always king when it comes to incenting and rewarding employees.

"Many times, cash alone isn't enough to motivate people," says Karen Hessian, a marketing director at Carlson Marketing, a Minneapolis company that helps employers build strategies to maximize and measure employee performance. Hessian has a good handle on helping employers decide on what's best for them: She designs incentive systems for a living.

When trying to decide between cash and non-cash awards, Hessian suggests looking at these two factors:

The behavior being rewarded. Do you want to award employees for the effect of their performance on the bottom line, or on how they live company values?

"Performance-based awards--exceeding sales expectations, for example--can be rewarded with hard cash," says Hessian. "You're rewarding performance that translates into economic benefits for the company."

Value-based awards are more subjective. They acknowledge behavior such as teamwork or traits such as ability to build morale. And they don't have to be cash-based to work effectively.

For example, Hitchcock Chair, says Michaud, has a value-based award program called "You're A Star," which rewards people "who are caught doing things in the spirit of the company." Employees nominate their colleagues for points by filling out a two-part form; the top part goes to the employee being rewarded, the bottom part to HR.

At the annual company outing, employees put their "You're A Star" points into drawings for prizes such as a weekend at a bed and breakfast or a Hitch-cock rocker.

Because employees nominate each other, the prize encourages employee interaction, which can pay its own rewards.

"Sometimes the people who are being recognized are amazed," says Michaud. "For example, there was a production scheduler who noticed that an assembler had expedited bed rails for an upcoming order. When the assembler got a 'You're A Star award, he said 'I didn't even know Donna knew my name!'"

The recipients. "You have to make sure you understand your employees and what motivates them," says Hessian. To do this, look at both demographic and psychologica1 factors.

"An entry-level customer service employee with a lower income level might have more basic needs and might prefer cash," says Hessian. But established sales reps earning higher incomes might prefer something with trophy value that enhances their self-esteem.

To delve into these psychological factors, ask employees what types of behavior they'd like recognized, and how. A survey takes out the guesswork, and employees will appreciate the fact that you asked.

Options and Alternatives

If you discover that cash isn't your best bet in rewarding and incenting your employees, there is an array of options you can tap. Again, it depends on what employees value most. In some cases, tangible gifts such as trophy-type prizes, wearables or gift certificates work best.

Some organizations offer a selection of rewards and allow employees to choose. That's how it works at Minneapolis-based. The Carlson Companies, where employees redeem their points for a variety of rewards, including gift certificates or even family vacations. (The Carlson Companies, which operates hotels and restaurants such as Radisson Hotels and TGI Fridays, purchased its incentive program from its subsidiary firm, Carlson Marketing.)