Businesses are always trying to find new ways to keep staff motivated and to maximise productivity. Employee incentives are often aimed at increasing motivation, inspiring performance and encouraging loyalty. But what kind of incentive will achieve the best results?
Traditional economic theories suggest that nothing can beat a cash incentive because, after all, how could a firm perfectly predict what an employee would choose to receive? On the other hand, there are various psychological reasons why a non-monetary incentive can be more beneficial to your firm than a cash incentive.
Cash bonuses are usually much appreciated; they do not always elicit the same psychological response as non-monetary incentives. Scott Jeffrey reviewed the psychology behind the benefits of tangible, non-monetary incentives. This blog aims to summarise some of these benefits and to serve as a reminder of the positive psychological effects a non-monetary incentive can generate.
Perceived Value of the Reward
Let’s hypothesise that a firm is offering a weekend away as reward for an employee’s hard work. Unlike a cash bonus, the economic value of a weekend away is unknown. This means the employee has to guess or ‘feel’ the worth of the reward. Because the feelings associated with a reward such as a weekend away can be very positive, the employee is likely to inflate the perceived value of the reward. Jeffery found that employees are therefore likely to put in more effort to receive the reward.
Continuing with the example above, a weekend away may not have been something an employee could justify purchasing for themself. A weekend away is a luxury and not a necessity in comparison to something like mortgage repayments or other bills. If an employee were given a cash bonus, they may feel the need to spend it on necessities as opposed to treating themselves to a positive experience.
Offering a weekend away will allow an employee to have a guilt-free positive experience. Not only will it leave the employee with a positive feeling it will also create an association between the positive feeling and their hard work.
An important part of any incentive is recognition. People want to be recognised for their hard work and great efforts. In our culture, it is a social faux pas to brag about your income. If a firm were to give a cash bonus to encourage an employee’s hard work, it is unlikely that employee will seek recognition from his colleagues through boasting about his/her lump sum.
However, if an employee received a weekend away, it would be more socially acceptable to broadcast the reward. Consequently, the employee can gain the recognition they deserve. Their colleagues may even inquire about the prize and further encourage the winner. This reward will not only encourage the winner to continue to work hard but will also act as a social reinforcer, inspiring other employees to do the same.
Save the Firm Money
Lastly, from a purely financial point of view, it is important to remember that non- monetary incentives can cost a business less. Since the actual value of a non-monetary incentive can be ambiguous, it is prone to psychological influences and thus the perceived value of the incentive is greater than it would be with a direct cash bonus.