3. James Heyman (University of California, Berkeley) and Dan Ariely (Massachusetts Institute of Technology) also conducted an experiment that offered important insights on how people think about cash vs. non-cash rewards. In his study, passers-by were offered different rewards in exchange for completing simple tasks like moving a computerized ball on a screen or solving a series of computerized puzzles. The results indicated that participants were less motivated by low cash rewards than by tangible, non-cash rewards (in this case, candy) of the same value.
Heyman and Ariely explained these results by suggesting that there were two markets in participants’ minds: a social market and a monetary market: “Using monetary payments causes participants to invoke monetary-marketplace frames and norms. When money is not involved (i.e., when there is no monetary reward or there is a gift reward), the market is perceived to be a social market).
Applying the cash value removed the emotional content from the reward and reduced it to a cash value people perceived as insignificant and insulting. In other words, the candy was worth more to people—and was more motivating—without drawing attention to its cash value. People were more engaged when participating in a social market rather than a monetary market.
The Non-Cash Advantage
These studies confirm that, when your objective is to increase people’s engagement in an activity they already know how to do, you must appeal to their desires, emotions and their idea of a social market. For companies looking to execute an incentive reward program, this means that you should use a non-cash reward system. Scott Jeffrey’s experiment, along with the Heyman and Ariely experiment, provides evidence that a non-cash system is more cost effective than a cash system. Business research organization The Aberdeen Group estimates that cash rewards cost about $0.12 per incremental dollar vs. $0.04 per incremental dollar for non-cash incentive rewards.
The other problem with cash incentives is that people begin to view them as expected, ongoing compensation. If that compensation doesn’t continue increasing, they lose interest. By contrast, a reward catalog like Loyaltyworks’, with millions of non-cash options, is unlikely to become dull to participants anytime soon. Essentially, it costs more to motivate employees with cash than with non-cash rewards.
While cash rewards may seem like the most widely-appealing incentive reward, since people tend to say they prefer cash, several academic, behavioral economics studies indicate this is not the case. The emotions associated with rewards are very likely to overpower the simple logic of cash’s usefulness. You can even put a cash value on the influence of those two emotions: it’s a difference of about $0.08 per incremental dollar spent on an incentive program. With non-cash reward programs, not only are your rewards more attractive and motivating to your employees, but you end up spending less money on those rewards.