For many years, the incentive industry has held up as its core belief the idea that cash is not a good motivator. That’s not to say cash incentives don’t have a place in sales compensation packages. The idea that the more you sell, the more you earn is fundamental to virtually all sales jobs. But when it comes to pushing salespeople to go that extra mile, decades of collective experience have taught incentive professionals that non-cash awards like merchandise, travel, and gift cards are both more motivational and cost-effective than cash.
More corporate executives, from frontline sales managers to all the way up to CEOs, are starting to see this. There are signs that the incentive industry’s argument is gaining traction among mainstream business thought leaders, says Rodger Stotz, an incentive industry veteran and chief research officer of the Incentive Research Foundation (IRF).
“There is an increased acceptance of non-cash incentives by both science and the C-suite,” says Stotz. He notes that in a recent IRF paper, “2012 Trends in Rewards and Recognition,” the group referenced research published in the past four years by the Aberdeen Group, PricewaterhouseCoopers, McKinsey & Co., and in the Harvard Business Review. “What was interesting was that all of these came at [the debate] from different perspectives,” Stotz says. But he points out that all of them arrived at the conclusion “that you have to look at other things beyond cash, beyond financial compensation,” while adding, “all of them acknowledged the effectiveness or strategic business value of non-cash components. This is the first time we’ve seen this [high] volume on the conversation by non-industry people.”
Stotz notes that this body of research and articles is particularly useful when talking to people outside the incentive industry because it specifically targets the C-suite audience. While the research doesn’t specifically cite travel, merchandise, and gift cards, he notes that the reports “do talk about what we would call surrogates for them. For example, they talk about recognition, they talk about showing appreciation.”
The Case Against Cash
In fact, it is getting easier to preach the incentive industry’s case beyond the choir of executives who already believe in non-cash rewards programs, says Dave Peer, president of both Hinda Incentives and the Incentive Marketing Association (IMA). “People are much more interested in this discussion than they were 24 to 36 months ago,” he says.
One of the key reasons why, Peer believes, is that “cash is too expensive—it costs a lot more to deliver cash awards than non-cash awards.” Another is that companies are “having a hard time relating the financial rewards [they have been paying out] to the results they want to achieve,” he adds. “They’re seeing that cash is not the panacea they thought.”
Stotz says there have been articles in a number of mainstream business publications in the past few years “that say cash is not working, that pay-for-performance is not working to the degree expected. [The conclusion] comes from human resources surveys, particularly World at Work surveys, in which HR people and accounting people have said that pay-for-performance has not been as effective as they expected.”
There’s a simple reason for this, Peer says, and it is an argument the incentive industry has been making for years: cash is not memorable. “In every single study and every single focus group that anyone’s ever held to get a bunch of people together and ask them what they want [for an incentive award], 80 percent said cash,” Peer says. “But at the end of the day, that has nothing to do with trophy value, it has nothing to do with shared memory, it has nothing to do with engagement. Why are you asking people what they want when you know what their answer is? Why don’t you design something that achieves the objectives you’re starting out with for the program?”
The problem, Peer suggests, is that “cash is not a motivator. It’s a compensator. I think that, more and more, the pendulum is swinging [toward that way of thinking].”
Stotz doesn’t see the mainstream discussion going that far. “I don’t think they’re saying cash is bad, but rather the [approach] that cash is the only thing people want isn’t working,” he argues. The research the IRF cites, he says, “comes down to yes, people need to get paid fairly, and yes, some cash incentives are appropriate, and they’re going to be a part of [the incentive] system, but if you’re only using cash, you’re missing a major emotional connector, and one that’s very valued for psychological reasons.”
Of the four research reports mentioned by Stotz and the IRF, Aberdeen Group’s report was most on target about non-cash awards. In December, the IRF sponsored a research brief culled from one of the research firm’s major annual reports, titled “Rewards and Recognition as a Vital Compensation Component.”
The brief, Stotz says, “looked at performance management in sales and found that organizations that used non-cash spiffs outperformed the ones that didn’t use them.”
Notably, best-in-class firms in the study were more than twice as likely (21% vs. 10%) to use non-cash incentives as industry-average or laggard firms. And the year-over-year increase in annual revenue for firms that used non-financial rewards and/or recognition was triple that of firms that didn’t use them (9.6% vs. 3%).
An article in McKinsey & Co.’s McKinsey Quarterly journal looked at no-cost motivators like praise from management. In the article, “Motivating People: Getting Beyond Money,” the authors said that “numerous studies have concluded that for people with satisfactory salaries, some non-financial motivators are more effective than extra cash in building long-term employee engagement.”
McKinsey & Co. surveyed more than 1,000 executives, managers, and employees around the world and found that respondents viewed three non-cash motivators—praise from immediate managers, leadership attention (one-on-one conversations, for example), and a chance to lead projects or task forces—as no less or even more effective than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock or stock options.
Last year’s “Pricewaterhouse-Coopers 14th Annual Global CEO Survey” asked 1,201 corporate leaders and government officials in 69 countries to what extent they intended to change their strategies in nine human-management categories over the coming 12 months. The biggest change they planned was “use more non-financial rewards to motivate staff.” Forty-seven percent planned “some change,” and 18 percent planned “significant change.”
The Harvard Business Review article the IRF refers to, “Employee Motivation: A Powerful New Model,” said research in fields like neuroscience and evolutionary biology suggests that people are guided by four basic emotional needs, or drives: 1) Acquire (obtain scarce goods, including intangibles such as social status), 2) Bond (form connections with individuals and groups), 3) Comprehend (satisfy curiosity and master the world around us), and 4) Defend (protect against external threats and promote justice).
To figure out how managers can use this “A-B-C-D” model, the authors of the Harvard Business Review article did several studies, including surveying employees at 300 Fortune 500 companies and looking at four common measures of workplace motivation: engagement, satisfaction, commitment, and intention to quit. What they found was not only do the A-B-C-D drives account for some 60 percent of the variation in motivation, but also that falling short on even one of those workplace measures, such as engagement, led to substantially worse scores in the other three drives.
Stotz says it’s worth noting that “engagement has been, over the last three to five years, one of the fastest growing areas recognition—and particularly non-cash award recognition—has been applied to.”