Cash vs. non-cash rewards

Headnote

In the land of employee rewards, cash isn't necessarily king. By Diane Cadrain

"Never underestimate the power of a 'thank you,'" says Tracy Michaud, HR manager at the Hitchcock Chair Co. in New Hartford, Conn. It is a statement that's hard to argue with. After all, a tangible expression of thanks or of reward can be an excellent way to encourage higher performance and promote valued company behaviors.

Like many things, however, the concept of providing incentives and rewards is simple, but the execution can be difficult. For example, a crucial question facing Michaud and other HR professionals is this: Are cash rewards the most effective ways of saying thanks to your employees?

It's a significant question for empoyers that have suffered through the nation's current economic woes and are strapped for cash; it's especially important to Michaud, whose company seeks to provide positive rewards even while it considers layoffs for the first time in its 200-- year history.

Fortunately for Hitchcock Chair and other employers, cash is not the only-or even necessarily the best-- way to motivate workers. In fact, while cash is the epitome of a flexible award-- it can be turned into almost anything-- it does have significant limitations. For example, employees must pay taxes on any cash awards they receive, which diminishes the value of the award. Some employers "gross up" awards to make up for the amount lost in taxes, but this raises the cost of the award.

Other problems: Cash doesn't reinforce brand loyalty, says Michaud. And employees may come to expect a regular cash payout. "Cash bonuses become an entitlement, and you lose the bang for the buck;' says Michaud.

Motivating Factors

The most compelling reason for using non-cash rewards, however, may be purely based on efficacy: Simply put, cash is not always king when it comes to inventing and rewarding employees.

"Many times, cash alone isn't enough to motivate people," says Karen Hessian, a marketing director at Carlson Marketing, a Minneapolis company that helps employers build strategies to maximize and measure employee performance. Hessian has a good handle on helping employers decide on what's best for them: She designs incentive systems for a living.

When trying to decide between cash and non-cash awards, Hessian suggests looking...