Competitive pay and a comprehensive benefits package are great recruitment and retention tools, but money is not effective in keeping employees motivated. New research reveals the value of allowing peak performers to "earn the right to indulge" using travel and merchandise rewards.

By Paul Nolan

Keeping top talent -- particularly top salespeople -- is crucial to remaining competitive in any industry. Companies are increasingly providing their best workers pay-for-performance bonuses with hopes that they will pamper themselves during off-hours and return to the office rested and ready to work even harder.

But there is a problem with cash rewards that researchers say is all but insurmountable: pragmatism. Most of us are hesitant to spend money on non-essentials, even when it's "extra income." "Consumers often feel guiltiest about the things that provide them with the highest pleasure," says Ran Kivetz, the Sidney Taurel Associate Professor of Marketing at Columbia University Graduate School of Business.

That jibes with a recent survey by Wirthlin Worldwide Research, which posed the question, "How did you spend your last cash reward?" 29% of respondents said they paid bills; 18% didn't remember; 15% said they never received cash; 11% purchased gifts for family; 11% bought household items; and another 11% put the money in savings.

As a result of his extensive research and field tests in behavioral economics as it relates to incentive systems, Kivetz states emphatically that non-cash incentives -- "hedonic luxuries," as he calls them -- are more effective than cash and cash equivalents (such as gift certificates) in triggering workplace performance that exceeds expectations. Much of Kivetz's research on incentives focuses on the loyalty program model that many consumer marketers use. He states, however, that his findings on which incentives work best holds true in the workplace in sales incentive and other employee reward programs.

Not only does Kivetz's research show that people will work harder for a luxury reward than the cash equivalent, it also indicates that increasing the magnitude of an incentive program's requirements increases the preference for luxury rewards rather than necessity rewards. In other words, the harder someone must work to achieve a goal, the more they want to receive a non-essential item as a reward.

Simply put, no matter how loud or how often your salespeople say, "Show me the money," companies do better for themselves and their employees by using high-end or branded merchandise and travel incentives.

Click here to find out what Ran's research uncovered...