New Research Shows Non-Cash Incentives More Effective Than Cash
There was a very interesting article in the September issue of Incentive Magazine, titled “Don’t Show Me the Money” which talked about groundbreaking new research on the effectiveness of cash versus non-cash incentives provides scientific support for much of the industry’s accumulated wisdom. The research is an independent and academic study led by Victoria Shaffer, Ph.D. and Director of the Decision Making Research Lab at Wichita State University. The research lends long-needed scientific support that non-cash incentives are indeed preferable to cash.
The results of the study were quite interesting as they provided some insight as to why in some cases individuals may say they prefer cash over non-cash awards. The research showed that if you ask people how happy they would be with a cash vs non cash award – without comparing the two – they will be happier with the luxury item. However, if you allow them to compare the awards they will choose the cash. Thus, the study shows that people don’t necessarily choose what will make them the most happy…something many fail to understand.
Shaffer found that if you give people the choice between a luxury award and cash of equal value, people are going to choose the cash because she says, “they realize all of a sudden cash is inherently more fungible.” Fungibility simply means how easy an item can be exchanged for something else you need, and cash, which can be traded for any good or service, is the most fungible item in our society. When people get to choose between the cash incentive versus the non-cash incentive is when the issue of fungibility becomes highlighted.
My interpretation of the research is simply put as; humans naturally prefer to be in charge and have a choice, so when asked if one prefers cash or a non-cash award the person will choose the cash because it gives them the power of choice of what to do with it.
The research also touched on the concept of trophy value…the ability to talk about the award. I really liked the points made on this subject. It is in bad taste to talk about how large of a bonus or cash award an employee receives from their company, however it is acceptable to talk about a luxury award or trip the company awards the employee with. That being said, the benefit to the company is greater because the non-cash award will be more appreciated as the employee tells others about how great their company is for providing them with such an award or gift.
The article also touches briefly on a topic that I think should be expanded on. Times are tough…people have amounted large debt and thus it becomes hard to justify “splurging” with money provided as a cash award. Instead the money is spent to pay down debt or to help pay with a current lingering bill. In doing so, that award is, “here today, gone tomorrow”…it will soon be forgotten. Thus, cash has fleeting value and has little lasting effect.
I think the most important thing when determining whether cash or non-cash awards are more effective is the way the question is asked. I think that indisputably non-cash awards are more effective, however when given the choice cash awards are more preferred…rightfully so. For a company wanting to get the most return on their investment though, a non-cash award will always be more effective.
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