Cash is King

Whenever you question employees or salespeople or distributors about what the most appealing incentive is to them, the answer is always cash.  In reality, cash is a poor motivator so save your research time and effort because the results are always the same.  By why not use cash?  It’s easy.  Participants can get whatever they want.  I don’t have to do anything different to hand out cash.  Cash incentives do have a place and a purpose.  If you consider all of the promotional efforts used to create a purchase of a product, cash is used quite often and for good reason.  Cash is best used when it is used as a replacement for a normal expenditure.  If you were going to purchase an item and there was a coupon offered for purchase of that item, that’s a cash incentive.  Sale items, bundling, couponing and rebates are all cash incentives.  You were going to spend your cash for the purchase and you saved your cash or were reimbursed.  Cash was replaced. 

Where is gets confusing is when cash is used as a reward for performance, not purchases.  Now it has crossed the line from everyday living expenses to achievement and relegated that achievement to a payment for services.  Non-cash awards have a staying power that the industry refers to as “trophy value.”  You’ll remember that trophy for years after the actual performance but you won’t remember what you spent the cash on.  There have been numerous studies on the use of cash and non-cash incentives (see The Benefits of Tangible Non-Monetary Incentives from the Forum for People Performance Management and Measurement at http://www.performanceforum.org/) and while cash is always requested, it underperforms other awards in cost and longevity.

When you are designing your incentive program, start by asking yourself what the participant is being asked to do.  If they are giving up earnings to purchase an item, then some form of cash incentive is best.  If they are being asked to increase their performance, to do something extra, above and beyond, then a non-cash incentive is best.  Easy to administer is not always the best solution and could be more costly in the long run.

I Don’t Need Incentives

Many companies think that incentives are “double dipping.”  I’m running some spiff program or worse, a full-year incentive program to pay employees (either operations or salespeople) to do the job I hired them to do.  I don’t need an incentive program to motivate someone to do what their salary or hourly wage already should motivate them.  Wrong.  Human psychology is a little more complex than that.  Remember the old Hawthorne studies that we all heard about in Business School.  They turned the lights up and productivity went up.  They turned the lights down and productivity went up.  What they deduced was that any attention paid to the employees had a positive effect.

We come a little farther since those studies and the negative incentive (Do this or you’re fired) to realize that “the stick” is not as powerful in the long run as “the carrot.”  It’s not about just rewarding someone for doing their job either.  Incentives are grounded in human psychology.  They target the audience that can have a positive impact on the business issue; engage them; communicate the objectives; track their performance toward stated goals; reward them for attainment and analyze the effectiveness. 

There are lots of programs that don’t work.  Many times, a company will create their own rules for an incentive, think they have all the bases covered, run the program and then find out the ROI was negative.  That may be enough for them never to run another program.  Too bad.  They can learn a lot from incentive professionals that have designed hundreds if not thousands of programs and know where there are pitfalls. 

What Are Incentives?

When is the last time you were influenced by an incentive?  Before you answer, think about what an incentive really is.  If you immediately thought of the trip to The Bahamas on an all-expense paid President’s Club, you might think it has been quite a while if ever.  But what about the last time you used a coupon for groceries or a discount coupon from a fabric store or hobby store?  They’re all incentives.  Incentives are designed to change anticipated behavior.  I wish I could say they change motivation but that isn’t true.  They change behavior.  Couponing is designed to get the consumer to try a new product or increase the purchase volume of a product.  Sometimes they are cross-coupons to get the consumer to purchase a product that is tied to another product.  In the retail market, it doesn’t even require a coupon to be an incentive.  In-store displays with SALE flashed all over are incentives.  So why are they sometimes viewed as negative?

Remember that incentive travel program for the AIG executives in the fall of 2009?  It’s what you remember even though it was a General American travel program for brokers that had exceeded stated objectives and earned the incentive travel trip.  So why all the negative press?  The government was bailing out AIG and here they were sending people on a “boondoggle” to Phoenix.  Wait.  The program was already paid for and cancellation penalties would exceed the cost but let’s ignore the facts.  We don’t like it because these brokers were living it up on our tax dollars.  Right? 

Just before this happened, our government announced the Cash for Clunkers program (an incentive program) that cost the taxpayers $3 billion.  Now that’s an incentive program.  Everyone thought that was great but guess what?  In studies conducted after the program, researchers found that all the program did was pull forward purchases that would have happened already.  For two months, car dealers saw an increase in sales, and this increase was completely reversed by the next 7 months of reduced car sales.  There was no effect on jobs, house prices or home default rates from the program.  Too bad our government did enlist incentive experts to assist in the design and operation of the program.  They would have created the economic models with an ROI established and measured against benchmarks like they did for the General American travel incentive program.

Incentives are all around us, influencing our behavior every day.  Without incentives, we would lack the motivators that enhance our performance beyond salary and compensation.