Help & advice: Non-monetary rewards

The opinions presented in this paper are subjective and are offered as a basis for further discussion and research only.

There is perhaps no subject debated more within either the reward & recognition or incentives markets than the value of tangible, non-monetary (or non-cash) rewards versus cash.

The arguments against giving cash (and what are High Street vouchers if not cash?) are founded on simple, well recognised and accepted principles.

Introduction

When a participant is deciding whether an award is ‘worth the effort’, the participant is considering the perceived value of earning the reward. The match-up between the value of the reward itself, and the effort required to earn it. Insights into this decision-making process come from expectancy theories, which hold that effort exerted in pursuit of a reward is positively related to the value of the reward offered for performance. This dynamic is known as the 'expected utility of the award'.

In addition, several principles of social cognitive psychology suggest that participants may perceive non-monetary rewards to be more valuable than the retail value of that award in cash. Acknowledgement from peers and other dynamics can extend the value of non-cash rewards over and above the cash value of the reward. This is referred to as 'trophy value'.

Four psychological processes

Four psychological processes influence participant perceptions of tangible non-monetary rewards, making them perceived to be more value than cash rewards of equal market value.

The four psychological processes can be categorised as items that directly affect the perceived value of the award and those that increase the value of earning the award, because the awards are earned rather than purchased.

Perceived value of the award:

• Evaluability
• Separability

Value of earning the award:

• Justifiability
• Social reinforcement

Evaluability

When non-cash reward comes in the form of an activity, lifestyle or travel award, considered a pleasurable experience, an interesting dynamic occurs.

That reaction is known as an 'affective reaction' to the reward. When you think about an experience such as a Spa Weekend, or a trip to Dubai, affective attributes that probably come first to mind are things like being pampered, fine dining, exclusive hotels, good weather and great beaches etc. Research has shown that people use vivid items more frequently than mundane items to form attitudes. Attaching a monetary value to non-cash rewards is difficult, the participants' affective reaction to the award substitutes for its predicted utility.

Such affective evaluations drive participant perceptions regarding award value as well, in fact, they tend to increase value beyond the actual. This is because affective evaluations tend to have ambiguity in value, allowing participants to cognitively alter the predicted utility of the award. Given that tangible, non-cash rewards are more difficult to ‘put a price on,’ they have greater ambiguity and therefore can be ascribed a higher value than cash, which has an established value and therefore no ambiguity.

Non-cash rewards have evaluability meaning they capitalise on affective reactions to the award, plus they increase the utility value of the award and its significance.

Separability

People mentally segregate some sources and uses of funds, and aggregate others. A type of mental accounting process occurs. Most people mentally separate investment income and home appreciation from salary, however, because salary and a cash bonus are both earned as part of the job, they are likely to be mentally combined with the rest of the participant’s employment income.

Cash bonuses lack separability, because they go into a base salary mental account. Therefore the value of the cash bonus as an award for performance ‘above and beyond’ does not stand out anymore. Companies can counter this through an awards ceremony, to commemorate the performance, however, participants often continue to view this money as an increase in total compensation, because it is cognitively aggregated with salary.

Non-cash rewards are usually consumed less frequently, they are separated into smaller, more specific mental accounts such as travel, experience, entertainment etc. In these cases, the award has separability, it is not aggregated with other compensation.

Non-cash rewards have separability meaning individuals separate the award from other compensation plus making the award unique and the performance 'stand out'.

Justifiability

Many non-cash rewards are viewed as luxuries that participants normally cannot justify purchasing. If a participant values it highly but would not purchase it then the opportunity to earn it as a reward for hard work does not violate the participant’s standards of justification.

An employee may rarely afford or justify spoiling themselves on a weekend away, or might never go on an expensive and frivolous trip to Thailand, however, if these rewards are earned for hard work and the participant  must ‘use it or lose it’ there is no need to justify taking it. Hard work therefore becomes an attractive way to acquire something that was not justifiable otherwise. Earning the non-cash reward therefore carries more value than earning the market value of the reward in cash.

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. This brings the participant’s beliefs in line with their actions and can increase the perceived value of a tangible non-monetary award. In other words, the harder a participant works to achieve an award, the more valuable the award becomes. This in turn leads to more effort.

Non-cash rewards have justifiability meaning they allow the participant to justify the consumption of the award and therefore motivate the participant to achieve and be awarded with something more difficult to obtain through purchase.

Social reinforcement

One of the most important rewards for a job well done is acknowledgement from one’s peers, supervisors, managers, family and friends. This social reinforcement comes from others knowing about the good performance.

Non-cash rewards may be more effective than cash rewards in this regard, because the participant doesn’t need to advertise earning them. An example would be a friend or colleague asking how the weekend break was that you earned from the company. This is a socially acceptable question. On the other hand it is not socially acceptable to ask how was the £1,000 you earned from the company.

Most people are uncomfortable bragging about cash, but enjoy talking about an experience or travel trip. With tangible non-cash rewards being visible and socially acceptable to praise, question, or bring up, there is no need to go out of one’s way to call attention to 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 reward is enhanced relative to the cash value of the reward.

Non-cash rewards have a 'trophy value'. Non-cash rewards such as a wide screen television will serve as a reminder to the participant about his or her performance and the company every time it is watched. Travel and experiences provide memories and are reminded with pictures etc. Cash awards can do this somewhat, but only when a plaque or certificate are provided as a physical marker. In the case of a non-cash reward, the award itself is the physical marker.

The utility of earning a non-cash reward is enhanced by the visibility of the award and the absence of social norms against discussing them.

When a cash award is provided, it becomes the participant’s. Anything purchased with it is something the participant chose to purchase rather than something the company awarded to the participant. Family, friends, and colleagues will also be more likely to view what the participant purchased as something the participant bought 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. This is less likely to happen with tangible non-cash awards.

Non-cash rewards offer social reinforcement meaning they increase the value of non-cash rewards through trophy value and they acknowledge the link between the award and the company.

What do the four psychological processes mean to the programme provider?

They should make the awards truly special. If the participant is less likely to purchase the item because he or she cannot justify it, then making the award truly special will increase the value of earning the award and therefore increase effort to receive it.

They should 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.