Cash vs. non-cash rewards: The good and the bad

Gift cards may be more effective than cash for rewarding your employees.

Gift cards may be more effective than cash for rewarding your employees.

By Carl Martens

It seems like a never-ending quest — the search among employers to find ways of maximizing employee productivity and efficiency. After all the workplace surveys have been conducted and findings correlated, the best approach appears to be choosing the right incentive to motivate employees to achieve individual and team-based objectives.

Invariably, this leads to the next question. Which serves as a more successful employee incentive — cash rewards or non-cash (i.e., gift card) rewards? As a small business owner, you want to make sure you get the most bang for every buck spent, so this is an important question.

Here’s a look at the advantages and disadvantages of implementing a cash reward program or a non-cash reward program in your business.

Cash rewards

First of all, “cash” is a simple concept. Everyone understands what a cash reward is, and it’s hard to find anyone who doesn’t like the idea of some additional cash in their pocket. Also, as business consultant Bridget Miller points out, a monetary incentive “is an easy and seemingly straightforward way to influence specific behaviors.” What’s more, Miller adds, this type of incentive “can be a way to give extra compensation to top performers when there are constraints that don’t allow raises or promotions to be used.”

Before rushing into a “straightforward” monetary incentive program, consider these disadvantages:

-The Internal Revenue Service regards cash awards as ordinary income provided by the employer. Such ordinary income is subject to federal and state withholding taxes, as well as FICA Social Security and Medicare withholding. Depending on the state where a business is located and the employee’s income level, an employer may pay in taxes as much as $1.48 for every dollar they give to an employee in spendable cash.

-Employees receiving a cash reward frequently spend it on necessities (food, gas, etc.), diluting the positive impact of the reward in their mind. They may also feel guilty if they don’t spend the cash on these basic needs.

-Cash rewards can come to be regarded as an “entitlement” along with one’s income. If a cash reward program is eventually discontinued, employees may resent the elimination of this incentive.

Non-cash rewards

Increasingly, non-cash rewards are viewed by businesses as more cost-effective to implement and of greater emotional value to honored employees. As noted by HRZone, the benefit is “the autonomy it allows employees when selecting the type of reward they receive, a choice which lets the recipients feel in control of their recognition.” When this non-cash reward takes the form of an experience or activity, “they are often ascribed a higher value than their actual price.”

Other notable advantages include:

-Awards given in a qualified incentive plan don’t have the same tax and fee obligations of a cash award. Gift awards are deductible as a business expense to the employer.

-Unlike cash, a valued gift serves as a tangible symbol of the company’s appreciation for outstanding work or service.

-Again, in contrast to cash that’s quickly spent and forgotten, a non-cash award comes with “bragging rights” and is a lasting reminder of individual achievements. It also promotes a favorable association with the employer.

-Non-cash team awards (for example, a group tour or outdoor experience) can significantly boost a sense that “we’re all in this together.”

Non-cash rewards come with some shortcomings as well. Obviously, money must be spent to cover the cost of the gifts, which in large sums can make a dent in business profits. Also, a well-executed incentive program takes time and resources to plan and put into place. There’s also the risk that giving such rewards may engender unrealistic expectations that the same types of gifts will be provided into the indefinite future, and are therefore part of an employee’s regular compensation.

Cash vs. non-cash? There’s no simple answer, just a need to closely examine the pros and cons before choosing the best way to motivate your workforce.

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Author bio: Carl Martens is the resident catalyst for change, at Award Concepts, encouraging colleagues and clients alike to think beyond what’s current. Carl is an advocate for his clients, working closely with them to develop and deliver their ideal recognition programs.

 

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