Cash is not a good way to motivate employees

Tangible rewards motivate employees when they’re easy to use, pleasurable, unexpected, and distinct from salary, an interesting new study found.

A recent survey of firms in the United States revealed that 84 percent spent more than $90 billion annually on tangible employee rewards, such as gift cards, recreation trips, and merchandise in hopes of increasing productivity.

What the researchers say: “We found that there is, at best, mixed evidence regarding the motivational efficacy of tangible rewards versus cash rewards,” said the study’s lead author. “It is somewhat puzzling why so many companies go to the trouble of tangible rewards when cash rewards also lead to motivational differences.”

The research team used four experiments to investigate the factors driving the preference between cash and tangible rewards. The attributes examined include ease of use of the reward (fungibility), hedonic nature of the reward (want vs. need), the novelty of the reward, and how the reward is presented.

“Rewards are constellations of attributes, and firms should focus more on the motivational effects of the attributes associated with a reward rather than the reward type itself,” the researchers said. “Results confirmed that each of these attributes – individually and in combination – increases employee effort and performance.”

The researchers recommend managers interested in motivating employees using tangible rewards would be best served to offer tangible rewards that incorporate these four attributes.

“If for whatever reason tangible rewards are the only tool available, our results show compelling evidence that employees are motivated by rewards that are perceived as distinct from salary,” the lead author noted. “Therefore, firms looking to get the most out of their reward programs should emphasize the distinctiveness of those rewards, and the attributes above are four ways firms can do that.”

So, what? Interesting, and valuable, as this research is, it would’ve been more useful if it had included non-material rewards in the study. Other studies reported in TR have shown that praise, acknowledgment, increased responsibility, increased learning and development opportunities, and relational support are more powerful motivators than any material reward system.