April 25, 2018
Research into the effectiveness of different types of motivation awards shows a well-conceived, well-run incentive, recognition or reward program improves productivity and performance.

 In fact, one study that looked at many other studies' rewards programs found that after six months, companies will see average performance gains of 44 to 48 percent in productivity. Within this research, there is plenty of evidence that noncash rewards work better than cash, for a variety of reasons.

To explain that and help program managers explain it to their bosses, the Incentive Research Foundation on April 24 released a new study summarizing these benefits and the reasons for them, as well as research backing it up, "Award Program Value & Evidence." The study was sponsored by Incentive, a sister publication of M&C's.

"Most leaders expect their investments in incentive, reward and recognition programs to meet specific goals, such as driving more sales, increasing revenue or producing some other return on investment," said Melissa Van Dyke, president of the IRF. "'Award Program Value & Evidence' presents a strong case for using noncash reward programs to motivate employees and practical advice on how to measure the success of these programs to ensure goals are met."

The first section of the study focuses on research that shows the psychological mechanisms underlying the advantages of tangible noncash awards. It then focuses on successful ways to measure the results of these programs, providing hard numbers to show their worth.

The psychology of noncash awards
The first of the six reasons for the success of these tangible noncash awards is mental accounting, or more simply put, the fact that getting something like a pair of headphones, a gift card to a restaurant or a trip to someplace special is more memorable than cash. The reason is simple: given cash, most people do something responsible with it, like pay a credit card or buy groceries. But ask them what they did with the award three months later and they likely won't remember. A tangible award -- a splurge -- remains with them, both physically and mentally, for a long time.

The second reason, seeking status, is the well-proven fact that many people will choose to be recognized -- such as by a president's club trip somewhere fun where they can mingle with the top brass -- instead of choosing cash. One study showed that salespeople would choose to book sales into a fiscal quarter when they can earn entry into a president's club rather than pushing those sales to the next quarter in a way that could earn higher commissions. On average, salespeople were willing to forego about 5 percent of their take-home pay to go on the award trip.

Other reasons tangible non-cash awards work better than cash include:

• Appreciation vs. entitlement: The fact that once given cash, many people come to see it as part of their salary rather than an award, and feel punished if they don't win.

• Effort justification: Also known as "The Ikea Effect," this shows that people will put a higher value on tangible awards they have earned as a reward than its cash value. For example, they will value an $8.50 movie ticket at $9.25 to $11.50 when it was won as an award.

• Social signaling: This means trophy value, the bragging rights that come with an award. People will talk about winning a new TV or a trip but almost no one would discuss a cash bonus.

• Perseverance, effort and performance: Tangible noncash awards lead people to work harder to win a potential award to which they have formed an emotional attachment.

Still, there are potential pitfalls when using tangible noncash awards. These range from what the study refers to as "the champagne effect" (the first glass is the celebration, each subsequent glass has less impact) to financial hardship, which simply means that if low-paid employees are struggling to get by, cash can be vital, not just an enticement.