SalesForceXP: July/Augiust 2007 Incentives&Recognition: What Money Won’t Buy

INCENTIVESRECOGNITION

Incentives and Recognition What Money Won’t Buy

When it comes to coaxing increased performance out of employees – sales or otherwise – companies have always tended to think cash first. Cash incentives remain the predominant method businesses use to move the needle, but an increasing number of executives and managers are heeding research and real-life results that suggest employees may perceive non-monetary incentives to be more valuable.

Scott Jeffrey, an assistant professor in the Department of Management Sciences at the University of Waterloo in Southwestern Ontario, performs research on incentives and participant motivation, as well as how goals are formed and how those goals affect job performance. Jeffrey has identified four psychological processes that positively influence perceptions of non-monetary incentives:

Anything purchased with a cash incentive is something the participant chose to purchase rather than something the firm awarded to the participant. Family, friends and colleagues are more likely to view that item as something the participant purchased rather than something that was awarded for performance. This makes the link between the company and the award weaker, diminishing the likelihood that good performance (or the company that awarded it) will be discussed.

• Evaluability – Non-cash awards are more difficult to attach a monetary value to. Therefore, when participants focus their thoughts on the positive attributes associated with the award, it is ascribed a higher value.

• Separability – Cash bonuses lack “separability” because they go into a base salary mental account. Companies attempt to counter this through recognition ceremonies, but participants often continue to view this money as an increase in total compensation. Non-cash incentives are separated into smaller, more specific mental accounts (travel, entertainment, etc.).

• Justifiability – Many non-cash incentive awards are viewed as luxuries that participants normally cannot justify purchasing. If a participant values it highly, then the opportunity to earn it as reward for hard work does not violate the participant’s standards of justification. In addition, cognitive dissonance research suggests that if a participant is working hard to achieve an award, the participant will try to mentally justify that the award is worth the effort. Put another way, the harder a participant works to achieve an award, the more valuable the award becomes.

• Social Reinforcement – One of the most important rewards for a job well done is acknowledgement from one’s peers, supervisors, family and friends. Non-cash incentives may be more effective than cash awards in this regard, because the participant doesn’t need to advertise earning them. By providing a better means to indirectly call attention to the award and what was accomplished to earn it, the value of earning a non-cash incentive is enhanced relative to the cash value of the incentive.
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Implications

What do the four psychological processes mean to incentive program practitioners? Here are some basic guidelines for consideration.

Make your awards truly special. If the participant is less likely to purchase the item (because he or she can’t justify it) then making the award truly special will increase the value of earning the award, and increase effort to receive it.
Use infrequently purchased items or services. Items or services that participants would likely not purchase on their own are more likely to attract the attention of colleagues, increasing the trophy value of the award.
Maximize (and capitalize upon) social reinforcement qualities. Encourage participants to think about the admiration that will result in achieving the award (and by proxy) the performance that led to it.
Communicate awards as “splurge” items. Imply within incentive program communications that the award is truly something the participant would only purchase as a luxury or personal treat. This will add to the award’s trophy value and increase its overall power as a motivational tool.
Vary award types to meet diverse needs. For each performance level, when participants can choose from a variety of awards, utility value perceptions are improved. Maximize utility value by offering incentives desired by people having diverse tastes.
Minimize the potential for “loss aversion.” If a cash incentive program is eliminated, any tangible, non-monetary incentive program implemented in its place should be of greater perceived value. Because of this, it may be better to use a non-cash incentive in a newer program rather than replace a cash program with a non-cash program.