Incentive Research in Action

Highlighting the “FUN” in tangible awards is key to rewarding employees

By Sandra Eagle

Gift cards, cash and merchandise are examples of incentives companies have been using since incentive travel abruptly stopped with the start of COVID. But research theory explains how tangible (non-cash) incentives versus non-tangible (cash) rewards motivate employees to work harder.

In the field of rewards and recognition, groundbreaking research was published in 1999 by behavioral economist Richard Thaler. Thaler proposed that people tend to code and organize their money and expenses, putting different value on the same amounts of money depending on how they classify it—fun money versus money to pay the bills.

Extensive research since then suggests that when people receive a cash reward, they tend to treat it like salary and use it for purposes like paying household bills. On the other hand, tangible rewards, like TVs, spa treatments and gift cards, stand apart from salary. By striking an emotional chord versus a rational one, researchers claim non-cash rewards become more memorable and desirable, motivating employees to work harder, improving performance.

A paper co-authored by Dr. Jongwoon Choi at the University of Wisconsin and Adam Presslee at the University of Waterloo in 2021 was among the first to isolate the conditions in which non-cash rewards may work better than cash.

Four experiments with more than 320 participants were conducted, involving simple computerbased tasks. Random participants were given the chance to earn an additional cash or non-cash reward if they achieved a difficult but attainable goal.

In the experiment, the cash reward group were told that for each round in which they met or exceeded their goal, they would get $30 instead of $20, this created an “expected” condition. Participants in the non-cash group were told only after the eighth round that they could earn a $10 AMC movie gift card (in addition to the $20) in each remaining round on condition that they met or exceeded the same performance goal as in the cash group. This created a “windfall,” or unexpected condition.

In the final outcome, significantly more of those in the non-cash group met their goals than in the cash group. The researchers found that the more distinguishable the reward from the standard payment, the greater the goal attainment. Emphasizing the fact that the fun aspect that tangible rewards hold convinces employees to work harder to achieve them.

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